Future Development of Global Imbalances - New Policy Platform Paper now online
The new Policy Platform White Paper "Future Development of Global Imbalances" written by Prof. Stefan Gerlach is now published on the Policy Platform website. The research paper was prepared for the European Parliament's Economic and Monetary Affairs Committee.
Global imbalances played an important role in setting the stage for the financial crisis by depressing real interest rates and supporting the search for yield. Central banks did not trigger this phenomenon but accommodated it. Monetary policy is not well suited to deal with current account imbalances and the resulting capital flows and asset price developments. Greater importance should therefore be attached to fiscal policy. While international cooperation is desirable, it is unlikely to achieve much whenever there is a conflict with important domestic policy issues. Nevertheless, the agreements reached at the G-20 Pittsburgh summit provides hope that cooperation will be improved.
The paper is available at: The Future of Global Imbalances