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Global imbalances: the perspective of the Bank of England

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In 2009, demand in the world’s major economies fell, relative to its pre-crisis trend, by around US$2.5 trillion or 5% of GDP. The financial crisis damaged virtually every country. Global imbalances helped to fuel the financial crisis. And today they threaten the sustainability of the recovery in global demand. Global imbalances are a reflection of today’s decentralised international monetary and financial system. All the main players around the world are rationally pursuing their own self interest. But the financial crisis has revealed that what makes sense for each player individually does not always make sense in aggregate. These actions had collective consequences. The main lesson from the crisis is the need to find better ways of ensuring the right collective outcome. Improved financial regulation will help to intermediate the flows associated with global imbalances. But the global economy will remain vulnerable to the risks associated with imbalances if they are not tackled at source. Two principles should underpin the way ahead. First, discussions should focus on the underlying disagreement about the right speed of adjustment to the real pattern of spending and hence the reduction in these imbalances. This discussion should be informed by countries’ ability to follow that path in a sustainable way. Second, many policies, in addition to changes in exchange rates, will be needed to reduce imbalances. If agreement is not reached on these two principles, at best there will be a weak world recovery; at worst, the seeds of the next financial crisis will be sown.

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  • King, Mervyn, 2011. "Global imbalances: the perspective of the Bank of England," Bank of England Quarterly Bulletin, Bank of England, vol. 51(1), pages 43-48.
  • Handle: RePEc:boe:qbullt:0043
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    References listed on IDEAS

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    1. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2008. "An Equilibrium Model of "Global Imbalances" and Low Interest Rates," American Economic Review, American Economic Association, vol. 98(1), pages 358-393, March.
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    3. Mr. Mauro Mecagni & Mr. Ruben V Atoyan & Mr. David J Hofman, 2009. "The Persistence of Capital Account Crises," IMF Working Papers 2009/103, International Monetary Fund.
    4. Michael Bordo & Barry Eichengreen & Daniela Klingebiel & Maria Soledad Martinez-Peria, 2001. "Is the crisis problem growing more severe?," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 16(32), pages 52-82.
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    1. Carlos A. Carrasco & Felipe Serrano, 2014. "Global and European Imbalances:A critical review," Working papers wpaper42, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    2. Roy, Saktinil & Kemme, David M., 2020. "The run-up to the global financial crisis: A longer historical view of financial liberalization, capital inflows, and asset bubbles," International Review of Financial Analysis, Elsevier, vol. 69(C).

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