Global Imbalances ... A Must Read
I know that keeping up with all sources, comments and opinions on the global macroeconomic imbalances can seem as a impossible task. We are some who are trying and obviously miserably failing but nevertheless ... trying. On that note, I have on several occasions mentioned Brad Setser and Brad's blog at RGE is truly a good place to start. However also, Menzie Chinn's and James Hamilton's Econbrowser is devoting more and more time to the subject and the latest post at the Browser (how is that for a nickname? :)) presents some indispensable sources. The post talks about the recent conference(s) at the The Allied Social Sciences Association:
The Allied Social Sciences Association (incorporating the AEA, the Econometric Society, the International Economics and Finance Society and many other groups) meetings took place in Chicago this last weekend. I wasn't able to go to that many sessions, but I did attend a few related to international issues.
One theme that ran through several was questions surrounding the origins of the current pattern of global imbalances.
The post cites a lot of interesting presentations and sources so I can only recommend you to take a look yourself since it is after all a must read :).
However, one paper I would like to feature, at least just a whee bit, is the IMF paper by Phillip Lane and Gian Maria Milesi-Ferretti on Europe and Global Imbalances. The paper essentially argues that given the rigidity of East Asian exchange rates versus the Dollar a siginificant deterioration of the US current account deficit would have a relatively high impact on the Euro, but argues also that given the relative size of US creditors the Euro would not be subject to a substantial appreciation in a world where East Asian and Oil Exporters weren't pegging to the Dollar. The general discourse of Europe/the Euro Area's ability to contribute to rebalancing also centers on whether the Euro Area can actually muster to take on the slack of the US in the global economy and here the paper points to structural reforms aimed at the domestic economies' performance as a way for Europe/the Euro Area to better stand a chance of contributing to a rebalancing process. In a most general sense the paper is structured around a four-scenario model on how Europe will be affected and can contribute to the re-balancing of global imbalances.
Concerning the main conclusions and assumptions I am not sure I agree with everything they say. Most importantly, I believe that Europe's perceived ability to substantially contribute to a re-balancing process is somewhat overstated, especially the idea that structural reforms would bolster European domestic economies to such a degree that they could run a sustained deficit on the external balances is not at all clear I think. However, as always in an IMF working paper, the charts and tables are a treat!