Global Imbalances

Seppo Honkapohja and Frank Westermann
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Frank Westermann: EEAG

Chapter 9 in Designing the European Model, 2009, pp 296-327 from Palgrave Macmillan

Abstract: Abstract The large and persistent current account deficits run by the United States from the second half of the 1990s have generated widespread concerns about the sustainability of current macroeconomic imbalances at the global level. To what extent is the US trade deficit sustainable? If not, what will global adjustment require? In particular, to what extent will the dollar depreciate? Will adjustment lead to global recession? What are the appropriate fiscal, monetary and financial policies to minimise the risks of disruption? Many observers (for example, Roubini and Setser 2004a, b, 2005a, b) fear that the correction of global imbalances could lead to a period of disorderly adjustment, characterised by turmoil in currency and asset markets, a slowdown in economic activity, and ultimately large welfare costs for the world economy as a whole.

Date: 2009
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Working Paper: Global imbalances (2006)
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DOI: 10.1057/9780230236653_10

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