External Adjustment and the Global Crisis

After widening substantially in the period preceding the global financial crisis, current account imbalances across the world have contracted to a significant extent. This paper analyzes the factors underlying this process of external adjustment. It finds that countries whose pre-crisis current acco...

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Bibliographic Details
Main Author: Milesi-Ferretti, Gian
Other Authors: Lane, Philip
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2011
Series:IMF Working Papers
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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651 4 |a Iceland 
653 |a Exchange rate arrangements 
653 |a Current account 
653 |a Short-term Capital Movements 
653 |a Currency; Foreign exchange 
653 |a Current Account Adjustment 
653 |a Balance of payments 
653 |a Exports and Imports 
653 |a International economics 
653 |a Foreign Exchange 
653 |a Current account balance 
653 |a Real exchange rates 
653 |a Foreign exchange 
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520 |a After widening substantially in the period preceding the global financial crisis, current account imbalances across the world have contracted to a significant extent. This paper analyzes the factors underlying this process of external adjustment. It finds that countries whose pre-crisis current account balances were in excess of what could be explained by economic fundamentals have experienced the largest contractions in their external balance. External adjustment in deficit countries was achieved primarily through demand compression, rather than expenditure switching. Changes in other investment flows were the main channel of financial account adjustment, with official external assistance and ECB liquidity cushioning the exit of private capital flows for some countries