External Adjustment and the Global Crisis

By Gian M Milesi-Ferretti, Philip R. Lane

August 1, 2011

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Gian M Milesi-Ferretti, and Philip R. Lane External Adjustment and the Global Crisis, (USA: International Monetary Fund, 2011) accessed September 20, 2024

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.

Subject: Balance of payments, Current account, Current account balance, Current account deficits, Exchange rate arrangements, Foreign exchange, Real exchange rates

Keywords: Baltics, Current account, Current account adjustment, Current account balance, Current account deficits, Current account gap, Exchange rate, Exchange rate arrangements, Exchange rate regime, Gap effect, Gap measure, GDP ratio, Global, Global crisis, Real exchange rates, WP

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/197
Stock No:

WPIEA2011197
ISBN:

9781462304240
ISSN:

1018-5941

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