DP7693 Global Imbalances: In Midstream?

Author(s): Olivier J Blanchard, Gian Maria Milesi-Ferretti
Publication Date: February 2010
Keyword(s): Current account, investment, portfolio choice., saving
JEL(s): E21, E22, F32, F33, F36, F41
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7693

Before the crisis, there were strong arguments for reducing global imbalances. As a result of the crisis, there have been significant changes in saving and investment patterns across the world and imbalances have narrowed considerably. Does this mean that imbalances are a problem of the past? Hardly. The paper argues that there is an urgent need to implement policy changes to address the remaining domestic and international distortions that are a key cause of imbalances. Failure to do so could result in the world economy being stuck in "midstream," threatening the sustainability of the recovery.