Global imbalances: what changes with the crisis?

Abstract

The policy blueprint for global recovery points to the need to reduce global imbalances. This paper discusses how the crisis is changing the environment in which global rebalancing is expected to take place, concerning the world saving glut; the relative size of balance sheets and risk premia across the private and the public sector; the difference between the real interest rate ‘r’ and the growth rate ‘g’, and its consequences for ‘bubbles’ and the macroeconomic costs of fiscal consolidation; the degree of cross border integration of markets. The paper also analyzes the role of global exchange rates in fostering rebalancing and recovery through their adjustment in nontraded wealth across countries.