External Imbalances and Financial Crises

Author/Editor: Alan Taylor
Publication Date: December 20, 2013
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: 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.
Series: Working Paper No. 13/260
Subject(s): Financial crisis | Current account | Credit expansion | Capital flows | Business cycles

Publication Date: December 20, 2013
ISBN/ISSN: 9781484322260/1018-5941 Format: Paper
Stock No: WPIEA2013260 Pages: 18
US$18.00 (Academic Rate:
US$18.00 )
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