Financial Crises and Recession in the Global Economy, Second
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Financial Crises and Recession in the Global Economy, Second Edition

Roy E. Allen

This timely and authoritative book explains the rise and fall of economies in Asia, Central America and Europe since 1980 and discusses these crises in the context of continuing economic globalization. This updated and fully revised edition includes a detailed account of the Mexican crisis of 1994–95, the Japanese crisis which has worsened in the late 1990s and the Asian crisis which emerged in 1997. Professor Allen discusses the impact of new uses and forms of money, and new financial flows such as electronic monies and offshore financial markets.
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Chapter 2: Financial Market Globalization and New Trade Patterns

Roy E. Allen


Page 25  2. Financial Market Globalization and New Trade Patterns  Unexpectedly large trade and investment imbalances developed between the US, Japan and others during the 1980s, which have continued through the 1990s. Since  1984, the US has had a trade deficit of more than $100 billion per year, and has received a net inflow of foreign investment of more than $100 billion per year — both  of which are now increasing in the wake of the 1997— Asian crisis to approximately $200 billion. Early explanations of these imbalances are found in the proceedings  from a conference organized by the Institute for International Economics in late 1990 (Bergsten, ed., 1991), and in the proceedings of the 1990 conference of The  International Economics Study Group (Milner and Snowden, 1992).  Despite intense focus on this topic by the economics profession, there is still disagreement over the international adjustment mechanisms and key variables that link  trade and investment flows. For example, Paul Krugman and many others argue that imbalances in US trade and finance can be appropriately reduced by movements  in currency exchange rates and government policy responses such as protectionism:  The need to reassess became especially acute in the late 1980s as widespread disappointment emerged over the continuation of sizable imbalances  despite large changes in exchange rates and other policy measures aimed at reducing the imbalances … [however] once we clean up the data, it seems  possible to argue that trade flows have responded to exchange rates in just about the way that an economist...

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