Global imbalances and "excess liquidity": is there a link?

Concerns about the sustainability of the current macroeconomic imbalances at the global level have dominated international policy debates. This article discusses a popular hypothesis linking global imbalances to the alleged presence of “excess liquidity” in international financial markets. It argues that while this hypothesis seems consistent with several aspects of current global imbalances, like the concurrence of low interest rates, asset price inflation and a high demand for US assets, especially as official reserves, it faces the challenge of accounting for the Asian savings surplus. JEL Classification: E5