Obstfeld and Rogoff

Question 1

What were the three trends observable in the 2000s before the crisis?

Answer 1

1) Real estate values were rising
2) High current account deficits in many countries
3) Extremely high leverage in many sectors especially in the US and the UK.

Question 2

What did Bini Smaghi say about imbalances?

Answer 2

External imbalances are often a reflection, and even a prediction, of internal imbalances. Economic policies should not ignore external imbalances and just assume that they will sort themselves out.

Question 3

What can the global imbalances be said to do with regard to the financial crisis?

Answer 3

REFLECT and MAGNIFY the ultimate causes being the financial crisis.

Question 4

Three reasons why global imbalances were widening in 2004-8?

Answer 4

1) Rise of global commodity prices.
2) China’s exchange rate policies.
3) Acceleration of financial innovation in the US.

Question 5

US interest rate:
early 2000:
June 2003:
2004: 
2006:

Answer 5

6.5%
1%
starts rising again
5.25%

Question 6

What are the two factors that lead to low long-term interest rates before 2004?

Answer 6

1) dot.com crash

2) monetary ease

Question 7

Which other factor contributed to low US interest rates from 2004 on?

Answer 7

Rapid accumulation of US reserves

Question 8

According to Bernanke, what two phenomena can the increase in global savings explain?

Answer 8

1) Increase in US current account deficit

2) Low level of long-term real interest rates

Question 9

According to Bernanke, what is the key reason behind the change in the current account position of developing countries?

Answer 9

Crises of of the mid-1990s.

Went from net importers to net exporters of financial capital.

Question 10

Accoding to Bernanke, what is a second reason for the surplus of emerging economies?

Answer 10

RIse in oil prices.

Question 11

Why did emerging economies decide to invest in the US?

Answer 11

Good regulatory environment, political stability and strong property rights made the the US economy very attractive.

Question 12

What, according to Bernanke, is not sufficient to solve the issue of global imbalances?

Answer 12

Purely inward-looking policies

Question 13

According to Bernanke, what should emerging economies do to solve the problem?

Answer 13

They should become again lenders rather than borrowers.