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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
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The Post-crisis Narrowing of International Imbalances
Cyclical or Durable?
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- Patrice Ollivaud1, Cyrille Schwellnus1
- Author Affiliations
- 1: OECD, France
- 25 June 2013
- Bibliographic information
After peaking in the first half of 2008, international imbalances declined sharply during the global crisis of 2008-09, in part reflecting cyclical factors such as large contractions in domestic demand on the back of bursting housing bubbles in a number of deficit countries, as well as large declines in cross-border capital flows, interest rates and commodity prices. This paper suggests that business and housing cycles alone account for around half of the decline in international imbalances, with real exchange rate and fiscal adjustments explaining only around one fifth. A range of stylised scenarios for the major trading areas that extends the short-term projections in OECD Economic Outlook No. 93 of May 2013 to 2020 suggests that in the absence of policy adjustments beyond 2014 international imbalances could rebound as output gaps gradually close and housing markets normalise, though to levels below the pre-crisis peak. Ambitious fiscal adjustment in countries with the largest remaining fiscal imbalances and selected structural reforms could offset the cyclical rebound in international imbalances and prevent diverging net asset positions in most areas. Moreover, ambitious fiscal and structural policy adjustments would provide some margin in case upside risks to international imbalances -- such as renewed housing booms that could be triggered by a rebound in cross-border capital flows or higher oil prices -- materialise.
- current account adjustment, macroeconomic policies, global imbalances
- JEL Classification:
- E60: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / General
- F32: International Economics / International Finance / Current Account Adjustment ; Short-Term Capital Movements
- F40: International Economics / Macroeconomic Aspects of International Trade and Finance / General