While global imbalances have fallen from pre-GFC peaks, progress in reducing imbalances has stalled in recent years. Imbalances are also increasingly concentrated in advanced economies, and continuation of large and persistent surpluses suggest automatic adjustment mechanisms might be weak. The seminar will discuss the risks from the current configuration of excess imbalances, and the possible policy responses to correct macroeconomic policy and structural distortions, including on the trade front, to correct these excess imbalances in a growth friendly way.
While global imbalances have fallen from pre‑global financial crises peaks, progress in reducing them has stalled in recent years. Imbalances are increasingly concentrated in advanced economies (AEs), and continuation of large and persistent surpluses suggest automatic adjustment mechanisms might be weak. The seminar discussed the risks from current excess imbalances and the possible policy responses to correct them.
Key Points:
Excess imbalances:
· There is an asymmetry in the adjustment of imbalances: deficit countries can run into financial problems and be forced to adjust; but surplus countries may retain excessive imbalances for long periods of time. In a global setting where deficit countries are reducing their deficits but surplus countries are not adjusting, the outcome is inadequate global growth (Lipton). Surplus countries play a significant role in generating these imbalances by generating insufficient spending (Eichengreen, Lane).
· Imbalances have improved: they are smaller and have moved toward the AEs, with capital not flowing from poor to rich countries (Eichengreen). Compared to the period right after the global financial crises, the debate today is more about macroeconomics than about the financial sector, inter alia, focusing on secular stagnation, low productivity and wage growth, low investment (and high corporate cash balances), and low interest rates (Eichengreen, Lane). There are distortions in financial, labor, product, and other markets that prevent a natural adjustment of excess imbalances and could have spillovers to other economies (Buch).
Risks:
· Important risks are reflected in the gross figures of imbalances and not necessarily in the net figures (Buch, Eichengreen, Prasad). Excess imbalances have implication for financial stability (Buch) and can prompt protectionist trade policies in some countries (Buch, Eichengreen, Lipton).
· Emerging markets have resumed reserve accumulation to protect themselves from the imbalances building up in AEs. This could in turn increase global imbalances further (Prasad).
Policy response:
· Continued reliance on monetary policy would exacerbate these imbalances. A more balanced approached involving fiscal and structural policies is needed (Lipton). Macroprudential policies and more emphasis on equity financing rather than on debt financing are also important (Buch). Each country must identify the policies needed to address the distortions in its markets (Buch).
· A fiscal expansion is not needed in the United States at this stage and would increase the current account deficit (Eichengreen, Lipton). More investment is needed in Germany (Eichengreen, Lipton); there are infrastructure projects that would be very remunerative (Lipton). A symmetric adjustment between the United States and Germany would be mutually beneficial for their economies and reduce excess global imbalances (Lipton). By contrast, Buch argued that having a fiscal stimulus in Germany would be procyclical at the present juncture.
· Bilateral trade imbalances are not bad per se (Eichengreen, Lipton). The IMF would like to see more market openness and the elimination of unfair trade practices such as non‑tariff barriers and subsidies, which can sustain excessive savings (Lipton).
Quotes:
“There is an asymmetry in the adjustment of imbalances: deficit countries can run into financial problems and be forced to adjust, but surplus countries may retain excessive imbalances for long periods of time. In a global setting where deficit countries are deducing their deficits but surplus countries are not adjusting, the unfortunate outcome can be inadequate global growth.” David Lipton
“The surplus countries play a significant role in that deficiency of spending.” Barry Eichengreen
“Having now a fiscal stimulus [in Germany] is questionable whether it would have the effects that some people might have expected; it is pretty sure it would be procyclical and may even increase domestic imbalances.” Claudia Buch
“We don’t know what excess imbalances mean.” Barry Eichengreen
“The Fund is just far too small, and it cannot provide insurance of an adequate scale to the emerging developing world.” Martin Wolf
Martin Wolf
Chief Economics Commentator
Financial Times
Martin Wolf is chief economics commentator at the Financial Times, London. He was awarded the CBE (Commander of the British Empire) in 2000 “for services to financial journalism”. Mr Wolf is an honorary fellow of Nuffield College, Oxford, honorary fellow of Corpus Christi College, Oxford University, an honorary fellow of the Oxford Institute for Economic Policy (Oxonia) and an honorary professor at the University of Nottingham.
David Lipton
First Deputy Managing Director
IMF
David Lipton has been First Deputy Managing Director of the International Monetary Fund since 2011. Before coming to the Fund, he was Special Assistant to the President and Senior Director for International Economic Affairs at the White House. Previously, he served as Under Secretary for International Affairs at the U.S. Treasury.
Claudia Buch
Vice-President
Deutsche Bundesbank
Claudia M. Buch is a German economist who currently serves as Vice President of the Bundesbank. She previously worked as professor at the University of Tübingen and served as a member of the German Council of Economic Experts. Buch worked as scientific director at the Institut für Angewandte Wirtschaftsforschung (Institute of Applied Economic Studies) in Tübingen and as chairperson of the economic council at the Federal Ministry of Economics and Technology.
Barry Eichengreen
Professor
University of California
Berkeley
Barry J. Eichengreen is the George C. Pardee and Helen N. Pardee Professor of Economics and Professor of Political Science at the University of California, Berkeley, where he has taught since 1987. He is a Research Associate of the National Bureau of Economic Research and Research Fellow of the Centre for Economic Policy Research. He has published books and research papers extensively on economic issues including labor and capital markets, emerging economies, international monetary system, and financial system
Philip R. Lane
Governor
Central Bank of Ireland
Philip R. Lane is the 11th Governor of the Central Bank of Ireland, taking office on 26 November 2015. Prior to his appointment, he was on the academic staff at Trinity College Dublin and he remains affiliated with the university as Whately Professor of Political Economy (on leave). Philip has chaired the Advisory Scientific Committee of the European Systemic Risk Board and was Director of the International Macroeconomics and Finance Programme at the Centre for Economic Policy Research (CEPR). He has also acted as an academic consultant for the European Central Bank, European Commission, International Monetary Fund, World Bank, OECD, Asian Development Bank and a number of national central banks.
Eswar Prasad
Professor
Cornell University
Eswar Prasad is the Tolani Senior Professor of Trade Policy and Professor of Economics at Cornell University. He is also a Senior Fellow at the Brookings Institution, where he holds the New Century Chair in International Economics, and a Research Associate at the National Bureau of Economic Research. He was previously head of the IMF's China Division. Prasad’s latest book is Gaining Currency: The Rise of the Renminbi (Oxford, 2016).
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