The Once and Future Global Imbalances? Interpreting the Post-Crisis Record

Global current account imbalances have reappeared, although the extent and distribution of these imbalances are noticeably different from those experienced in the middle of the last decade. What does that recurrence mean for our understanding of the origin and nature of such imbalances? Will imbalances persist over time? Informed by empirical estimates of the determinants of current account imbalances encompassing the period after the global recession, I find that – as before – the observable manifestations of the factors driving the global saving glut have had limited explanatory power for the time series variation in imbalances. Nonethelesss, fiscal factors have accounted for a noticeable share of the recent variation in imbalances, including in the US and Germany. Examining observable policy actions, it’s clear that net official flows have been associated with some share of imbalances, although tracing out the motivations for intervention is difficult. Looking forward, it’s clear that policy can influence global imbalances, although some component of the US deficit will likely remain given the US role in generating safe assets.