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External Adjustment and the Global Crisis

Author/Editor: Gian-Maria Milesi-Ferretti | Philip R. Lane
Authorized for Distribution: August 1, 2011
Electronic Access: Free Full Text (PDF file size is 662KB)
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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: After widening substantially in the period preceding the global financial crisis, current account imbalances across the world have contracted to a significant extent. This paper analyzes the factors underlying this process of external adjustment. It finds that countries whose pre-crisis current account balances were in excess of what could be explained by economic fundamentals have experienced the largest contractions in their external balance. External adjustment in deficit countries was achieved primarily through demand compression, rather than expenditure switching. Changes in other investment flows were the main channel of financial account adjustment, with official external assistance and ECB liquidity cushioning the exit of private capital flows for some countries.
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Series: Working Paper No. 11/197
Subject(s): Currency pegs | Current account | Global Financial Crisis 2008-2009 | Production | Real effective exchange rates
Author's keyword(s): Global crisis; current account; exchange rate regime.
    Published:   August 1, 2011        
    ISBN/ISSN:   9781462304240/1018-5941   Format:   Paper
    Stock No:   WPIEA2011197   Pages:   38
    Price:   US$18.00
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