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The international monetary and financial system: a capital account perspective

Claudio Borio (), Harold James and Hyun Song Shin

No 204, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: In analysing the performance of the international monetary and financial system (IMFS), too much attention has been paid to the current account and far too little to the capital account. This is true of both formal analytical models and historical narratives. This approach may be reasonable when financial markets are highly segmented. But it is badly inadequate when they are closely integrated, as they have been most of the time since at least the second half of the 19th century. Zeroing on the capital account shifts the focus from the goods markets to asset markets and balance sheets. Seen through this lens, the IMFS looks quite different. Its main weakness is its propensity to amplify financial surges and collapses that generate costly financial crises ? its ?excess financial elasticity?. And assessing the vulnerabilities it hides requires going beyond the residence/non-resident distinction that underpins the balance of payments to look at the consolidated balance sheets of the decision units that straddle national borders, be these banks or non-financial companies. We illustrate these points by revisiting two defining historical phases in which financial meltdowns figured prominently, the interwar years and the more recent Great Financial Crisis.

JEL-codes: E40 E43 E44 E50 E52 F30 F40 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2014-10-01
New Economics Papers: this item is included in nep-acc, nep-cba, nep-his, nep-mac, nep-mon and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:204

DOI: 10.24149/gwp204

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