DP8611 Financial Flows, Financial Crises, and Global Imbalances

Author(s): Maurice Obstfeld
Publication Date: October 2011
Keyword(s): current account balance, financial instability, global imbalances, international asset positions, international financial flows
JEL(s): F32, F34, F36
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8611

In this lecture I document the proliferation of gross international asset and liability positions and discuss some of the consequences for individual countries? external adjustment processes and for global financial stability. In light of the rapid growth of gross global financial flows and the serious risks associated with them, one might wonder about the continuing relevance of the net financial flow measured by the current account balance. I argue that global current account imbalances remain an essential target for policy scrutiny, for financial as well as macroeconomic reasons. Nonetheless, it is critically important for policymakers to monitor as well the rapidly evolving structure of global gross assets and liabilities.