Imbalances Flashcards
According to Borio and Disyatat, what are the empirical facts that raise prima facie doubts about the ES view?
1) Us current account deficit reducing while long-term interest rate was falling.
2) Right before the crisis the US dollar long-term interest rate had been increasing with no effect on the deficit.
3) Weak link between US current account deficit and global savings.
4) Not only deficit countries experienced credit booms, but also e.g. China, India and Brazil.
5) Countries supposedly at the origin of the net capital flows were not much affected by the crisis.
(Boris and Disyatat) What is it that the current account does not capture?
Gross capital flows. Net capital flows capture only a small portion of global financial flows.
Current account = ???
Change in resident holdings of foreign assets - Change in resident liabilities to non-residents.
Current account in terms of saving and investment
Current account = saving - investment
Surplus =
Net increase in claims of residents on the rest of the world.
What does according to Borio and Disyatat current account say nothing about?
The extent to which domestic investment is financed from abroad.
According to Borio and Dysiatat a balanced current account only implies that ……?….. and not that …?…
A balanced current account only implies that domestic production equals domestic spending, not that domestic saving finances domestic investment.
According to Borio and Dysiatat what can we not say about the relationship between surplus and deficit countries?
We cannot say that countries with a current account surplus are financing countries with a current account deficit.
(Boris and Disyatat) If a country A has a deficit vis-à-vis country B, it does not follow that….?
country A has accumulated liabilities vis-à-vis country B, because these liabilities may be held vis-à-vis any other country in the world.
(Boris and Disyatat) Which sector did the bulk of gross inflows to the US originate from?
Not the official sector, but the private sector. The role of cross-border bank flows was very important.
(Boris and Disyatat) Which regions did the global gross capital flow move among?
Not from EMEs to the US, but mainly among advanced economies. Capital inflows to the US came mainly from Europe and particularly the UK, which was actually running a deficit.
(Borio and Disyatat) What does elasticity mean?
The degree to which the monetary and financial regimes constrain the credit creation process and the availability of external funding.
(Borio and Disyatat) The two things that high elasticity can do:
1) Facilitate expenditrures and production
2) Accommodate the build up of global imbalances
(Boris and Disyatat) Why is monetary policy important?
It is monetary policy that ultimately sets the price of leverage in a give currency area!
(Borio and Disyatat) Two things monetary policy should do:
1) Go beyond mere inflation rate targeting regimes.
2) Think about the international system as a whole
