Discussion Paper Details

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Title: Global Imbalances and the Financial Crisis: Products of Common Causes

Author(s): Maurice Obstfeld and Kenneth Rogoff

Publication Date: December 2009

Keyword(s): current account deficit, financial crisis, financial reform, global imbalances and housing bubble

Programme Area(s): International Macroeconomics

Abstract: This paper makes a case that the global imbalances of the 2000s and the recent global financial crisis are intimately connected. Both have their origins in economic policies followed in a number of countries in the 2000s and in distortions that influenced the transmission of these policies through U.S. and ultimately through global financial markets. In the U.S., the interaction among the Fed?s monetary stance, global real interest rates, credit market distortions, and financial innovation created the toxic mix of conditions making the U.S. the epicenter of the global financial crisis. Outside the U.S., exchange rate and other economic policies followed by emerging markets such as China contributed to the United States? ability to borrow cheaply abroad and thereby finance its unsustainable housing bubble.

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Bibliographic Reference

Obstfeld, M and Rogoff, K. 2009. 'Global Imbalances and the Financial Crisis: Products of Common Causes'. London, Centre for Economic Policy Research.