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This paper deals with global imbalances as an increasingly important issue in our age. While the literature establishes that current accounts are inversely related to the ratio of income to consumption inequality in OECD, our study finds that this relationship is reversed in Asia. That ratio has much to do with various schemes of consumption smoothing, which are affected by policy interventions to alleviate the effects of rising income inequality. Different policies may generate opposite outcomes. In OECD, policy encourages consumer credit and deficit spending among low-income people so that consumption inequality is kept artificially low, leading up to a current account deficit. In Asia, policy promotes output growth via high savings with no well-developed smoothing schemes designed to help poor households, so that consumption inequality moves in line with income inequality, with excess savings recycled into a current account surplus. Hence, any reduction in global imbalances requires both regions to adjust their policies for mitigating income inequality and optimizing smoothing schemes. [ABSTRACT FROM AUTHOR]

We empirically study the relationship between currency excess returns and current account uncertainty, measured as forecast dispersion. We find that investment currencies deliver low returns, whereas funding currencies offer a hedge when current account uncertainty is unexpectedly high. Moreover, an increase in current account uncertainty is associated with higher expected future excess returns on investment currencies. This mechanism is consistent with the recent advances in exchange rate theory based on capital flows in imperfect financial markets. This paper was accepted by Gustavo Manso, finance. Funding: A. Krecetovs thanks the Brevan Howard Centre at Imperial College London for financial support. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4949. [ABSTRACT FROM AUTHOR]

We present a comprehensive analysis of the shock absorption role of external positions using the currency exposures dataset by Bénétrix et al. (2020). While the literature has frequently studied how the net international investment position and its currency composition determine the direction and scale of valuation effects, we focus on their amplitude. This is of central importance for global financial stability given the large and increasing scale of external balance sheets. To that end, we propose an indicator showing the extent to which external positions absorb or amplify exchange rate shocks. Analysing a set of 50 countries over the period 1990-2017, we find the external shock absorption role to be present for advanced economies, while this was initially not the case for emerging markets economies (EMEs). In recent years, however, EMEs' external positions increasingly showed a shock absorption capacity. Our regression-based analysis reveals that the level of economic and financial development is associated with a greater capacity to absorb exchange rate shocks. [ABSTRACT FROM AUTHOR]

Germany's excessive current account surpluses mirror domestic problems. They are rooted in inequality and a weak home market, creating an overdependence on exports. Why, then, are policymakers so reluctant to reduce them? This paper argues that a contributing factor is the public misrepresentation of surpluses' domestic costs. Imbalances are narrated as distributional conflicts between countries, not within them; and bilateral trade is framed as a competition, where surplus countries win. The analysis reconstructs stakeholders' positions and discursive strategies through media narratives and Bundestag debates, using an original dataset of public statements. It finds evidence for a systematic bias disregarding the domestic losers of surpluses. Whenever imbalances are discussed, the triggering event is outside criticism, mainly from the European Commission and the US. The ensuing debate follows an 'us versus them' logic, where foreign critics clash with domestic defenders—mainly the government and export-sector organisations. The success narrative and identitarian discourse about an 'export nation' limits left-wing actors' room to move beyond incremental criticism. The analysis finds an effect of European integration exacerbating imbalances. Germans fend off critics by an arena-shifting strategy: pointing out that exchange rates and trade are European-level prerogatives, disregarding internal policy levers for rebalancing. [ABSTRACT FROM AUTHOR]

A prominent feature within the sphere of international macroeconomics surrounds the notion of the domestic economy succumbing to a "sudden stop" — i.e. the point at which creditors are no longer willing to enter into fresh exposures vis-à-vis debtors. One avenue which has been increasingly adopted as a means to survey a nation's external sustainability (i.e. its vulnerability to sudden stops) is through the net international investment position (NIIP) — the difference between stocks of cross-border claims and liabilities. On the basis that financial account transactions are larger than current account transactions in terms of both volume and value, this paper by conjoining several strands of the international macroeconomics literature presents three motivations to suggest that the notion of external sustainability can be decoupled from the NIIP, namely that while a nation may in theory be a net creditor vis-à-vis the rest of the world in accordance with its NIIP, in reality, its susceptibility to sudden stops may be larger than an economy which is a net debtor as a consequence of (1) stock or (2) flow effects. Moreover, should the domestic economy succumb to a sudden stop as a result of either stock or flow effects, (3) this may not translate into changes to NIIP, thereby masking the fact that even though the domestic economy has succumbed to balance of payments difficulties, it continues to appear as a net creditor. To achieve its objectives, each motivative factor is presented through systems of financial accounts. Separate annexes also disseminate how delays between payment and settlement result in credit risks, in addition to how exchange rate fluctuations can impose accounting losses/gains on the balance sheets of counterparties. [ABSTRACT FROM AUTHOR]

This paper revisits the crucial issue of current account imbalances and focuses on the determinants of their gaps between eurozone Member States. We conduct robust estimations of the current account balances for a panel of ten founding euro area economies and construct a measure that allows us to diagnose why some countries have started to diverge from the eurozone mean in the last two decades. Our findings show evidence of remaining differences in countries' economic development, meaning that real macroeconomic convergence has failed in the zone. Price and cost competitiveness, as well as fiscal balances, have also participated in this growing macroeconomic divergence. Overall, while the European authorities cannot influence the part of the current account gaps due to demographic factors, the role of fiscal redistribution and investment at the euro area level could help achieve macroeconomic convergence and thus reduce current accounts' divergence in the zone. [ABSTRACT FROM AUTHOR]

The Eurozone's export-oriented policy regime and pursuit of trade surpluses remains thoroughly puzzling. Rooted in overly strict fiscal policies, inequality and underinvestment; undermining growth and contributing to trade tensions– it defies economic self-interest. This paper develops an analytical framework to confront this puzzle. It argues that these policies are self-harming, but are nonetheless pursued, because of three fallacies that obscure the cost-benefit calculus attached to them. These fallacies are rooted in the empirical problem of observational equivalence: the same observed surplus can be driven by different underlying processes, and its net benefit will depend on our assumptions about these drivers. The first fallacy is mistaking external enablers for domestic competitiveness—interpreting export success to be linked to domestic reform, when it was largely explained by better links to faster growing trading partners. The second fallacy is mistaking weak imports for strong exports—interpreting surpluses as 'winning', even when they are not driven by superior exports but sluggish imports. The third fallacy is mismeasuring multinational firms' contributions to national exports—interpreting profit shifting and assets stashed in low tax jurisdictions as export performance. Germany and Ireland, as paradigmatic 'success cases of austerity', are used to expand the argument. [ABSTRACT FROM AUTHOR]

America's current-account deficit has grown significantly since 2020, reaching 3.6% of GDP last year – its highest level since 2008. At the same time, its net foreign debt reached a staggering $18 trillion, or 78% of GDP. And fast-rising inflation has prompted the US Federal Reserve to begin raising interest rates and reducing its holdings of Treasury securities – moves that are likely to impede growth and increase the government's borrowing cost. Will America's "external sustainability" be at risk again? To answer that question, we must consider the four variables on which external sustainability depends: the gap between private saving and private investment, the size of the budget deficit, investment-income levels, and the rate of GDP growth. Geopolitics might compound the challenges ahead. The US has avoided a balance-of- payments and dollar crisis in the past largely because Asian central banks and oil- exporting countries have tirelessly purchased US government bonds and Treasury bills. But amid rising geopolitical tensions, these buyers might decide – or be forced – to rethink their purchases. It is against this backdrop that the Fed is pursuing rather aggressive interest-rate hikes and quantitative tightening. But increased demand for foreign capital to finance the trade deficit, together with greater reluctance by foreign investors to purchase US government bonds and Treasuries, might put America in a quandary. It is likely that America's external balance will deteriorate significantly, unless US GDP growth slows significantly. [ABSTRACT FROM AUTHOR]

Addressing ecological crises such as climate change within the current International Monetary System (IMS) will likely be impossible. International monetary relations are built upon a hierarchy between currencies, which generates structural Core-Periphery imbalances and prevents Peripheral countries from attracting the long-term investments necessary for an ecological transition. While propositions have emerged to reform the IMS in order to address both global imbalances and ecological crises, they typically approach these issues as separate phenomena. In contrast, this paper develops a political ecology of global imbalances to explore how currency hierarchies are constituted and maintained through ecological hierarchies: monetary dominance depends upon the continuous and uneven flow of resources from Peripheral to Core countries. This connection between monetary and ecological hierarchies is particularly visible through the Chimerica relationship, which linked the international dominance of the US dollar to China's coal-powered development. While China is now transitioning away from its Peripheral status by seeking to reconfigure currency and ecological hierarchies to support its own resource-intensive growth, this trend also increases the likelihood of systemic ecological crises. This suggests that the quest for a balanced and green IMS requires a dramatic shift away from the Core-driven imperial modes of production, consumption and living. [ABSTRACT FROM AUTHOR]

This article investigates the political roots of the global rise in corporate savings. In recent years, firms throughout advanced economies have started to accumulate enormous savings. Instead of using their revenues to reinvest or raise wages, many companies now stash their profits within financial markets, contributing to sluggish growth, financial fragilities, and rising inequality. I argue that political institutions that determine the balance of power between firms and employees play an important role in shaping this trend. The stronger unions are, the more they pressure firms into using revenues for pay increases and investment. The more unions' influence erodes, the stronger the rise of savings. Using panel data from 25 Organization for Economic Cooperation and Development countries as well as a regression discontinuity design leveraging the German law on codetermination, I find robust and causal evidence supporting this claim. These results have implications for our broader understanding of how political institutions affect financial imbalances and economic inequality. [ABSTRACT FROM AUTHOR]

The US net foreign asset position has deteriorated sharply since 2007 and is currently negative 65 percent of US GDP. This deterioration primarily reflects changes in the relative values of large gross international equity positions, as opposed to net new borrowing. In particular, a sharp increase in equity prices that has been US-specific has inflated the value of US foreign liabilities. We develop an international macro finance model to interpret these trends, and we argue that the rise in equity prices in the United States likely reflects rising profitability of domestic firms rather than a substantial accumulation of unmeasured capital by those firms. Under that interpretation, the revaluation effects that have driven down the US net foreign asset position are associated with large, unanticipated transfers of US output to foreign investors. [ABSTRACT FROM AUTHOR]

Investigations into the process by which cross-border payments are completed within the international monetary system remain largely unresolved. By exploring how these payments are executed through a flow of funds representation as per Institutional Practice—the operations of both the Central Bank and commercial banks within the payment and settlement system—this paper will (1) demonstrate that domestic monetary policy implementation entails the Central Bank offsetting all autonomous reserve flows to maintain an overnight policy rate; (2) show why global imbalances occur and persist across the international monetary system; and (3) outline the impact of involuntary constraints on policymaking. [ABSTRACT FROM AUTHOR]

Macroprudential policies have become essential tools for policymakers to maintain financial stability. We investigate the impact of macroprudential policies on the current account balance, considering the link between external imbalances and financial stability. Building on a panel VAR model, we further document that usage of a macroprudential instrument is associated with an improvement in the current account balance. Our findings suggest that the positive impact of macroprudential policy measures on the current account balance is more substantial in the deficit countries. [ABSTRACT FROM AUTHOR]

Abstract This paper investigates how much of the current account adjustment after the global financial crisis in Spain can be explained by cyclical factors. For this purpose, we extend the IMF’s external balance assessment methodology to allow for country-specific slopes and intercepts. The good fit of these cross-country regressions implies negligible residuals for most countries, and, as a result, the positive analysis of current account decompositions provides a more informative assessment of the external balance drivers. According to our findings, around 60% of the 11 pp. adjustment of the Spanish external imbalance over the years 2008–2015 can be explained by transitory factors such as the output gap, the oil balance, and the financial cycle—a share that diminished down to 50% during the more recent recovery period. The remaining adjustment of the Spanish external balance is explained by factors such as the cyclically adjusted fiscal consolidation, population ageing, lower growth expectations, or competitiveness gains, which can all be considered as more permanent phenomena.

The United States has been running deficits on current accounts since the early 1990s. The current account deficits and surplus have caused dislocations in both developing and advanced economies. A recent study by Bullard et al. (2017) noted that the US economy is still the world’s largest economy and, according to the authors, between 2008-15 there was an average annual shortfall of 20% in fixed capital investment due to the 2008 crisis which also adversely impacted GDP growth and output (Bullard et al., 2017). This study will discuss the recent development in the US economy and also global imbalances in a historical perspective in order to try to understand the current situation. The discussion also includes the recent rise in China’s economy and the international trade. The study concludes that the trade deficits on the current scale cannot continue forever. Closing the trade deficit will require a more equal distribution of world spending, meaning a fall in US spending and a rise in spending from the rest of the world. Policy measures should be taken to increase state spending rather than rely on debt-fuelled private consumption to resolve inadequate aggregate demands. The reform should be made so as to seek profits in the real economy rather than ‘finance financing finance’. Finance should be made less globalised

Motivation: After four decades of very successful reforms, China has become one of the largest economies in the world. An important area of these reforms is the exchange rate system and monetary policy, which over the years has complied with economic objectives, in particular the promotion of economic growth by improving export competitiveness. The progressive liberalisation of the Chinese economy and its ever closer integration into the world economy require this policy to be adapted to changing circumstances.Aim: The aim of the article is to analyze China’s exchange rate policy from the perspective of the dilemma of choosing between using this policy to support export competitiveness and striving to internationalise the renminbi. Moreover, the author assesses the consequences of this policy for China’s economy and for the world economy. The study includes theoretical research (analysis of the literature and research reports) and empirical research (analysis of statistical data) using a descriptive analysis.Results: For many years China’s exchange rate policy has been focused on supporting economic growth by improving export competitiveness, resulting in both increasing internal imbalances and difficulties in stabilising inflation, as well as the accumulation of global payments imbalances. Since 2005 China has made its currency more flexible, so that the underestimation of the renminbi’s exchange rate has decreased. In recent years, China has intensified its efforts to support the internationalisation of the renminbi. However, the renminbi is not yet in rivalry with the US dollar as the dominant international currency, although the Chinese currency’s share as an international currency is increasing, which should have a positive impact on the stability of global financial relations.

Central Bank operational frameworks can be challenged during times of severe financial stress. Typical of such an instance is where policymakers attempt to heavily manage or fix a domestic exchange rate whilst faced with balance of payments pressures. However, it is claimed to be impossible for policymakers to achieve both monetary independence and exchange rate stability if the domestic economy were to post a balance of payment surplus, otherwise known as the 'impossible trinity'. The purpose of this paper is to investigate the European Monetary System crisis through the lens of Institutional Practice, that is the day‐to‐day operations of key institutions, such as the Central Bank, Treasury and commercial banks, with a view to demonstrate why global imbalances are able to occur and persist across the international monetary system. Through both a theoretical and an empirical appraisal, this paper shows how Central Banks in economies with a balance of payments surplus can circumvent the binding constraints of the trinity within their operational frameworks. [ABSTRACT FROM AUTHOR]

In order to contribute to the debate on whether exchange rate under-valuation was a major factor in global trade imbalances that culminated in the 2008 Global Financial Crisis (GFC), we estimate long-run equilibrium real exchange rates (ERER) for a panel of eight large emerging market economies (EMEs) over 1995–2017 based on structural factors. These include EME-AE (advanced economy) differentials in productivity, dependency and financial development, along with factors like trade openness, sectoral relative price and fiscal procyclicality. Amongst the dominant factors, we find that rising relative productivity appreciates ERER, but is offset by an almost equal depreciation from financial development. Estimated misalignments show both EME under- and over-valuation before the GFC, with under-valuation more prominent in Russia and Turkey. China, India, Indonesia and Mexico were experiencing a correction towards equilibrium from over-valued rates a year or two before the GFC. Post-GFC appreciation in EME ERERs compared to pre-GFC years indicates convergence in EME-AE prices, but misalignments were more in the zone of under-valuation during the period. The absence of substantial under-valuation in pre-GFC years indicates that EME RER misalignments were not a major cause of the GFC. Impulse responses show the limited impact of misalignments on current account imbalances, suggesting that the incentive to devalue was low. • We test the hypothesis of under-valuation leading to global imbalances with EME data. • Productivity appreciates long-run equilibrium exchange rates (ERERs) in EMEs. • Financial development has an offsetting effect of depreciation on their ERERs. • Post-GFC, there was an improvement in EME fundamentals relative to AEs. • Pre-GFC, substantial under-valuation is absent, but it is more common post-GFC. [ABSTRACT FROM AUTHOR]

This work shows that the U.S.-Sino diverse links between income and consumption inequality have to do with their different development levels and policy orientations. Foreign trade, financial markets, and capital flows are used for consumption smoothing in the U.S. but for economic growth in China. Other smoothing schemes are better developed in the U.S. than in China. As a result, income and consumption inequalities are linked loosely in the U.S. burdened with an external deficit but closely in China faced with a persist surplus. [ABSTRACT FROM AUTHOR]

This paper examines the impacts of external adjustment related to global imbalances on the external accounts (trade balance, current account and net foreign asset position) and real output in oil-exporting and frontier markets in Africa via the trade and financial (valuation) channels. To this end, we estimate two global vector autoregression (GVAR) models for 47 countries across different regions, over the period 1979Q2–2016Q4. We also consider the relative importance of global oil price shock and financial market volatility (proxied by the VIX index) as potential drivers of global imbalances. Our results show that the exchange rate policies in the US and China are equally important for economic activity and external accounts of African countries, with changes in China's real effective exchange rate (REER) exerting greater influence on the external accounts of these developing countries. The effects of a positive oil shock and heightened financial market volatility are transmitted into African countries via both the trade and the financial channels, but the differentiated impacts of the oil price shock deepen the external imbalances between oil-exporters and frontier markets in Africa. The trade channel emerged as the main transmission mechanism for these external shocks, while the role of valuation effect working through changes in REER is limited, and negligible with respect to the oil price shock. [ABSTRACT FROM AUTHOR]

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In the context of the debate on the global imbalances, this study investigates the determinants of US trade balance in a non‐linear ARDL framework, which accounts for the asymmetric and non‐linear effects of real effective exchange rate dynamics. Drawing on the data from 1994Q1 to 2018Q1, our key empirical findings suggest significant evidence of short‐ and long‐run asymmetries in the relationship between the real effective exchange rate, US trade balance and its determinants. An asymmetric cumulative dynamic multiplier analysis shows evidence of an asymmetric J‐curve. Furthermore, we find that the price stability, productivity, domestic savings and fiscal deficit/discipline are crucial for the US trade balance in the short to long term. Empirical findings of this study contribute to the contemporary debate on the US trade deficit and have profound policy implications for the competitiveness of the US economy and its external balance. [ABSTRACT FROM AUTHOR]

This article assesses the scope for economic recovery following the COVID-19 shock. A theoretical review looks at the interplay between the forces of aggregate demand and income generation, on the one hand, and distribution and finance, on the other hand. The role of the public sector is shown to be pivotal. But the injections/leakages framework proposed in the empirical analysis uncovers a disappointing configuration of global demand and policies. The public sector as a driver of demand, distribution and financial stability has been virtually removed. Instead, it was replaced by finance-led schemes that have caused stepwise decelerations in economic growth and increases in government financial constraints, crisis after crisis. On this basis, the prospects for a sustained global recovery after the pandemic look unmistakably grim, barring a radical reorientation of policies. [ABSTRACT FROM AUTHOR]

This paper investigates how much of the current account adjustment after the global financial crisis in Spain can be explained by cyclical factors. For this purpose, we extend the IMF's external balance assessment methodology to allow for country-specific slopes and intercepts. The good fit of these cross-country regressions implies negligible residuals for most countries, and, as a result, the positive analysis of current account decompositions provides a more informative assessment of the external balance drivers. According to our findings, around 60% of the 11 pp. adjustment of the Spanish external imbalance over the years 2008–2015 can be explained by transitory factors such as the output gap, the oil balance, and the financial cycle—a share that diminished down to 50% during the more recent recovery period. The remaining adjustment of the Spanish external balance is explained by factors such as the cyclically adjusted fiscal consolidation, population ageing, lower growth expectations, or competitiveness gains, which can all be considered as more permanent phenomena. [ABSTRACT FROM AUTHOR]

In this paper we evaluate the current account patterns of China and Germany. Wepoint out that China's current account surplus as a share of global GDP in recent yearsresembles that of Germany’s. Yet, an important difference is that the Euro block’scurrent account inclusive of Germany has overall been balanced, whereas emergingAsia's current account inclusive of China has mostly been characterized by sizablesurpluses. We further find that both China and Germany's current account surplusesseem to be accounted for by common factors. However we have reasons to doubt thelong run viability of these current account trends in future decades. Demographictransitions in China and Germany are projected to reduce their surpluses, and thiseffect is stronger for Germany. We also discuss plausible reasons to doubt the extentto which the Euro block will move towards significant surplus in the coming years.

This paper studies the economic impacts of China–US trade tensions. A global value chains-augmented global vector autoregressive trade model that gauges the spatial and temporal dynamics of international transmission of economy-specific trade policy shock across economies is employed. Trade tensions are found to have both real and financial effects on individual economies. Results lend support to the thesis that international trade is a positive-sum game in the world trading system characterized by global value chains. The US restrictive trade policy is counter-productive to the US economy by worsening its trade imbalances. Redirection of investment from China may be limited given the contemporary world economy characterized by global value chain production networks. Economies from different regional economic groups and with different trade balance positions are heterogeneously affected. As a whole, trade protectionism is detrimental to the economic well-being of the world economy by shrinking international trade, reducing output, curbing investment and plummeting stock prices. [ABSTRACT FROM AUTHOR]

Germany's large current account surplus has been widely criticized, especially against the backdrop of the role of macroeconomic imbalances in the Eurozone crisis. We argue that Germany's resistance to reduce its massive current account surplus through an expansionary policy at home is rooted in distributive struggles about the design of possible adjustment policies. To explore this argument, we leverage original survey data from 135 German economic interest groups, qualitative interviews with interest group representatives and policymakers, and data from public opinion surveys. We show that while there is general support for internal adjustment among German interest groups, they disagree heavily about which specific policies should be implemented to achieve this goal. Together with a broad public and elite-based consensus to avoid a break-up of the Eurozone, this polarization turns financing into a politically attractive strategy. Rather than being rooted only in German ordoliberal ideas or Germany's export-oriented structure, distributive conflicts contribute significantly to Germany's resistance to reduce its large current-account surplus. Because similar dynamics can be observed in other surplus countries, we argue that distributive struggles within surplus countries played an important role in interstate conflicts about the management of the crisis. [ABSTRACT FROM AUTHOR]

This paper sheds light on global GDP spillovers in the context of external imbalances. We adopt a Bayesian time-varying panel vector autoregression framework to analyze the global implications of changes in assets and liabilities of the US and the Euro Area in a global framework which includes 25 industrial and emerging economies. We find significant evidence for assets and liabilities spillovers from positions in the Euro Area and the US which often result in negative effects on GDP growth. [ABSTRACT FROM AUTHOR]

Why do some countries run persistent current account surpluses? Why do others run deficits, often over decades, leading to enduring global imbalances? Such persistent imbalances are the root cause of many financial crises and a major source of international economic conflict. We propose that differences in wage-bargaining institutions explain a large share of imbalances through their effect on the trade balance. In countries with coordinated wage bargaining, wage growth in export industries can be restrained to ensure competitiveness, leading to persistent trade surpluses. We estimate the contribution of these institutions to trade balances in Organisation for Economic Co-operation and Development (OECD) member countries since 1977 and find ample support for our hypothesis. Contrary to much of the literature, the choice of fixed or floating exchange rate regimes has only a small effect on trade or current account balances. In other words, internal adjustment in surplus countries via wage-bargaining institutions trumps external adjustment by deficit countries. [ABSTRACT FROM AUTHOR]

We estimate a structural term‐structure model of U.S. real rates, where arbitrageurs accommodate demand pressures exerted by domestic and foreign official investors. Official demand affects rates by altering the aggregate price of duration risk, and thereby bond risk premiums. Although foreign central banks' demand contributed to reduce long‐term real rates mainly in the years prior to the global‐financial crisis, the Federal Reserve's demand lowered rates during the quantitative easing period. Overall, the two‐factor model, augmented to account for changing liquidity conditions, offers a good representation of real rates during the 2001–16 period; however, we flag some caveats and possible extensions. [ABSTRACT FROM AUTHOR]

This paper argues that the key deep underlying fundamental for the growing international imbalances leading to the collapse of the Bretton Woods system between 1971 and 1973 was rising U.S. inflation since 1965. It was driven in turn by expansionary fiscal and monetary policies ---the elephant in the room. What was kept in the background at the Camp David meeting on August 15, 1971 when President Richard Nixon closed the U.S. gold window, as well as imposing a 10 % surcharge on all imports and a ninety day wage price freeze—was that U.S. inflation, driven by macro policies, was the main problem facing the Bretton Woods System, and that for political and doctrinal reasons was not directly addressed. Instead President Nixon blamed the rest of the world rather than correcting mistaken U.S. policies. In addition, at the urging of Federal Reserve Chairman Arthur F. Burns, Nixon adopted wage and price controls to mask the inflation, hence punting the problem into the future. This paper revisits the story of the collapse of the Bretton Woods system and the origins of the Great Inflation. Based on historical narratives and conversations with the Honorable George P. Shultz, a crucial player in the events of the period 1969 to 1973, I argue the case that the pursuit of sound monetary and fiscal policies could have avoided much of the turmoil in the waning years of Bretton Woods. Moreover, I point out some of the similarities between the imbalances of the 1960s and 1970s—especially fiscal and the use of tariff protection as a strategic tool, as well as some differences—relatively stable monetary policy and floating exchange rates. [ABSTRACT FROM AUTHOR]

We analyze current account imbalances through the lens of the two largest surplus countries; China and Germany. We observe two striking patterns visible since the 2007/8 Global Financial Crisis. First, while China has been gradually reducing its current account surplus, Germany's surplus has continued to increase throughout and after the crisis. Second, for these two countries, there is a remarkable reversal in the patterns of exchange rate misalignment: China's currency has turned from being undervalued to overvalued, Germany's currency has erased its level of overvaluation and become undervalued. Our empirical analyses show that the current account balances of these two countries are quite well explained by currency misalignment, common economic factors, and country-specific factors. Furthermore, we highlight the global financial crisis effects and, for Germany, the importance of differentiating balances against euro and non-euro countries. [ABSTRACT FROM AUTHOR]

Motivation: After four decades of very successful reforms, China has become one of the largest economies in the world. An important area of these reforms is the exchange rate system and monetary policy, which over the years has complied with economic objectives, in particular the promotion of economic growth by improving export competitiveness. The progressive liberalisation of the Chinese economy and its ever closer integration into the world economy require this policy to be adapted to changing circumstances. Aim: The aim of the article is to analyze China's exchange rate policy from the perspective of the dilemma of choosing between using this policy to support export competitiveness and striving to internationalise the renminbi. Moreover, the author assesses the consequences of this policy for China's economy and for the world economy. The study includes theoretical research (analysis of the literature and research reports) and empirical research (analysis of statistical data) using a descriptive analysis. Results: For many years China's exchange rate policy has been focused on supporting economic growth by improving export competitiveness, resulting in both increasing internal imbalances and difficulties in stabilising inflation, as well as the accumulation of global payments imbalances. Since 2005 China has made its currency more flexible, so that the underestimation of the renminbi's exchange rate has decreased. In recent years, China has intensified its efforts to support the internationalisation of the renminbi. However, the renminbi is not yet in rivalry with the US dollar as the dominant international currency, although the Chinese currency's share as an international currency is increasing, which should have a positive impact on the stability of global financial relations. [ABSTRACT FROM AUTHOR]

In the context of globalization, global financial crisis reflected the evolution of the relation global finance - global economy. The paper focuses on two issues. First, we review a part of the literature regarding the costs and benefits of financial globalization and the links between financial globalization, global imbalances and crises. Second, we discuss whether the financial globalization associated with global imbalances contributed to the 2008 global financial crisis. We conclude that global imbalances (GDP, current account, capital flows and international reserves) played a key role in determining the incidence and propagation of the global financial crisis both in advanced and developing economies. But they are still not resolved and so the risk to power a new global crisis remains high. Therefore economic and financial globalization has to redefine the links between international finance and global economy nowadays.

The aim of this article is to develop a consistent theoretical approach to the financial links between the so-called debt-led (DLG) and 'export-led' (XLG) growth regimes. Assuming the endogenous supply of money and the unstable dynamics of financial markets, the leveraging process of DLG regimes is taken as an inherent dynamic of developed domestic financial systems, without the need of any external capital inflow. Foreign inflows are not a requisite for such expansions; however, attracted by high expected returns, they can play a key role in fueling DLG cases. Alternatively, current-account imbalances are not an indicator of the international financial flows but rather a side effect stemming from the productive, financial and trade links between DLG and XLG countries. Based on this approach, we study the relationship between changes in credit and current-account balances in several countries before and after the crisis of 2008. Both the observed general relationship of these variables for most of the countries, as well as some specific national cases 'out of the norm' are fundamental for understanding the national and international financial links between DLG and XLG models. [ABSTRACT FROM AUTHOR]

This paper investigates the causality relationship between budget and current account deficits for 14 Asian countries. The major findings based on bootstrap Granger causality tests in heterogenous mixed panels are: First, investments (and foreign capital inflows) have a notable impact on the current account prior to the Asian financial crisis of 1997-1998. Second, we detect direct causality between the budget and the current account imbalances before but not after the crisis. The data suggest that the current account targeting hypothesis, that is, the reverse causality, prevails after the crisis. Third, budget deficits have a significant influence on both investment and foreign capital inflows in the second period. Fourth, Asian countries are less susceptible to the influence of FDI inflows in the aftermath of the crisis. Finally, structural break turns out crucial in assessing the causal patterns of the twin deficits nexus in the Asian countries. [ABSTRACT FROM AUTHOR]

With Donald Trump as President of United States, multilateralism in the world economy is facing an unprecedented challenge. The international economic institutions that have evolved since the fifties are increasingly under the risk of being undermined. With the growing assertion of the emerging and developing economies in the international fora, United States is increasingly sceptical of its ability to maneuvre such institutions to suit its own purpose. This is particularly true with respect to WTO, based on “one country one vote” system. The tariff rate hikes initiated by the leader country in the recent past pose a serious challenge to the multilateral trading system. The paper tries to undertake a critical overview of the US pre-occupation of targeting economies on the basis of the bilateral merchandise trade surpluses of countries, through the trade legislations like Omnibus Act and Trade Facilitation Act. These legislations not only ignore the growing share of the United States in the growing invisibles trade in the world economy, but also read too much into the bilateral trade surpluses of economies with United States and the intervention done by them in the foreign exchange market. [ABSTRACT FROM AUTHOR]