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External Imbalances and Financial Crises

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  • Alan Taylor

Abstract

Consider two views of the global financial crisis. One view looks across the border: it blames external imbalances, the unprecedented current account deficits and surpluses in recent years. Another view looks within the border: it faults domestic financial systems where risks originated in excessive credit booms. We can use the lens of macroeconomic and financial history to confront these dueling hypotheses with evidence. The credit boom explanation is the most plausible predictor of crises since the late nineteenth century; global imbalances have only a weak correlation with financial distress compared to indicators drawn from the financial system itself.

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  • Alan Taylor, 2013. "External Imbalances and Financial Crises," IMF Working Papers 2013/260, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2013/260
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    More about this item

    Keywords

    WP; financial crisis; recession; financial crisis recession; economy; Financial crises; financial openness; capital controls; current account; external imbalances; credit boom; once-in-a-generation financial crisis event; banking crisis risk; macro-financial crisis; Credit booms; Current account imbalances; Credit; Europe; Global;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

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