Global Imbalances and Financial Stability

May 1, 2007

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Format: Chicago

Miranda Xafa. Global Imbalances and Financial Stability, (USA: International Monetary Fund, 2007) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper discusses two opposing views on global imbalances: The "traditional view", which regards the imbalances as a threat to global economic and financial stability, and the "new paradigm" view, which considers that they are the natural consequence of economic and financial globalization. In terms of their policy implications, the traditional view focuses on monetary and fiscal policy decisions in the United States that need to be urgently reversed to avoid an abrupt unwinding of the imbalances involving a sell-off of dollar assets, a sharp increase in U.S. interest rates, and a hard landing for the global economy. By contrast, the new paradigm view considers that the imbalances will be resolved smoothly through the normal functioning of markets. The paper argues that an abrupt unwinding of imbalances is highly unlikely and advances a number of arguments in support of the new paradigm view.

Subject: Balance of payments, Business cycles, Capital flows, Currencies, Current account, Current account deficits, Economic growth, Emerging and frontier financial markets, Financial markets, International trade, Trade balance

Keywords: Asset, Asset inflation, Asset shortage, Asset Shortages, Business cycles, Capital flows, Current account, Current account deficit, Current account deficits, Deficit, Dollar, Dollar assets, Emerging and frontier financial markets, Financial Globalization, Global, Global Imbalances, Market, Market reaction, Net, Paradigm view, Policy implication, Portfolio Balance, Sell-off of dollar assets, Trade balance, WP

Publication Details

Pages:

20
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/111
Stock No:

WPIEA2007111
ISBN:

9781451866759
ISSN:

1018-5941

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