Global Imbalances: A Roadmap

This paper provides an overview of the academic and policy debate on the roots of global imbalancesm their role in the inception of the global crisis, and their prospects in its aftermath. The conventional view holds that global imbalances result primarily from an ussustainable excess demand for goods in the United States and other rich countries. In this view, their impending correction must involve major U.S. trade adjustment and dollar depreciation- although recent literature argues that much of the correction may take the form of financial adjustment instead. In contrast, an alternative view portrays global imbalances as the equilibrium result of asymmetries in worls asset demand and supply. Absent changes in the deep determinants of these, global imbalances can persist. Overall, international capital flow patterns before and during the crisis lend support to the equilibrium view. The paper also examines differents views on the role of global imbalances in the generation and propagation of the financial crisis. On the wholw, the evidence suggest that global imbalances were not among the major causes of the crisis. Lastly, the paper assesses the future of global imabalances, and discusses new proposals of current account caps to reduce them.