External Imbalances and Financial Crises

Author/Editor:

Alan Taylor

Publication Date:

December 20, 2013

Electronic Access:

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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. 2013/260

Subject:

Balance of payments Credit Credit booms Current account Current account imbalances Financial crises Money

English

Publication Date:

December 20, 2013

ISBN/ISSN:

9781484322260/1018-5941

Stock No:

WPIEA2013260

Pages:

18

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