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1 – 10 of over 12000Jung Taik Hyun, Jun Yeop Lee and Jin Young Hong
This paper examines global imbalance and rebalancing issues from the viewpoint of Korea. As IMF (2009) notes, the unwinding of global imbalance seems inevitable and, in fact, it…
Abstract
This paper examines global imbalance and rebalancing issues from the viewpoint of Korea. As IMF (2009) notes, the unwinding of global imbalance seems inevitable and, in fact, it is in progress. We illustrate that Korea, with a flexible exchange rate system and relatively balanced current accounts, has little direct linkage to global imbalance. However, we also find that Korea is not immune to the costly adjustment process of imbalance due to the triangular trade between Korea, China and the U.S. The fact that Korea is ‘indirectly’ linked to global imbalance limits Korea’s ability to cope with the situation. Boosting domestic demand, often mentioned recommendation for East Asia, is not an appropriate solution for Korea with low personal savings rate. A lot depends on China’s policy. If China reduces its dependence on U.S. market and increases domestic consumption despite unemployment risk in export manufacturing sector, it will provide Korea with an opportunity for more stable growth based on China’s final demand. Korea can also make efforts to increase economic integration and expand monetary cooperation in Asia that would help to increase consumption demands and final goods trade in the region.
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Muhammad Ali Nasir and Karen Jackson
In the context of debate on competitive devaluation and trade imbalances, the purpose of this paper is to investigate the role of exchange rate misalignment as a determinant of…
Abstract
Purpose
In the context of debate on competitive devaluation and trade imbalances, the purpose of this paper is to investigate the role of exchange rate misalignment as a determinant of trade imbalances in selected major trade surplus (Germany, China, Japan, Russia and KSA) and major trade deficit countries (USA, UK, France, India and Turkey).
Design/methodology/approach
The authors used a structural vector auto-regressive model on data from ten countries with the highest trade deficit and surplus. The period of analysis is from 2000 Q1 to 2016 Q1.
Findings
The key findings suggest that although exchange rate misalignment from equilibrium may have some implications for the current account balance for surplus and deficit countries, the effects observed were rather very mild and transitory. There was a heterogeneity in the response of the current account position to exchange rate misalignment in each country, concomitantly; the exchange rate misalignment shall not be seen as the sole responsible factor in the debate on global trade imbalances.
Research limitations/implications
The research has profound implications in terms of exploring the notion of competitive devaluation and exchange rate misalignment as a cause of major global trade imbalances.
Practical implications
This study has important practical implications for the trade policy of major economies in the world. These are twofold. First, this study has analysed and reported on the degree of misalignment of exchange from its equilibrium values in the major trade surplus and deficit countries. Second, it has investigated the implications of any misalignment for the trade balance or respective economies.
Social implications
There are important social implications as the notion of competitive devaluation and exchange rate–trade balance nexus has been heavily politicised. This study provides an empirical insight and an answer to these claims which have social and political implications.
Originality/value
There is a significant element of originality and contribution to the existing body of knowledge on the subject. In the context of debate on competitive devaluation this is the first study which has investigated whether the exchange rate has been misaligned from its equilibrium values (competitive devaluation) and whether there is some nexus between the real exchange rate misalignment and trade imbalances in under-analysis economies.
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A news report from South Africa reads, “Clothing and Textile Workers’ Union (SACTWU) members held a string several meter long with 40,000 pieces of fabric attached to display…
Abstract
A news report from South Africa reads, “Clothing and Textile Workers’ Union (SACTWU) members held a string several meter long with 40,000 pieces of fabric attached to display their agitation over cheap Chinese imports which has claimed thousands of jobs loss. Due to cheap Chinese imports over 67,000 jobs had been lost and more than 350,000 people have been suffering who were engaged in clothing, footwear and textile sectors.” A saver in Southeast Asia once complained, “When I opened up my dollar savings account about 3 years ago, I bought a sizable amount of the green bucks at Philippine peso 56.40. Today, the peso–dollar exchange rate stands at Philippine peso 43.27. That's a net loss of Php13.13 for every dollar that I have in the bank. That loss closely amounts to a brand new car or a down payment for a house and lot. And I thought going with a dollar savings was the best fiscal move I made in years.” Other savers in many countries are also affected since their local currencies have become much stronger against the U.S. green bucks.
Recent research in mainstream economics, before as well as since the 2008 crisis, has stressed the importance of growing current account imbalances among countries, particularly…
Abstract
Recent research in mainstream economics, before as well as since the 2008 crisis, has stressed the importance of growing current account imbalances among countries, particularly the imbalances between the United States and some Asian countries. While some have seen in these imbalances proof of the efficient work done by liberalized financial markets, as well as a sign of the great dynamism of the US economy, others have warned about the possible threats to the global economic stability arising from potential speculation against the dollar. These latter writers see the international imbalances as a contemporary version of the Triffin Dilemma. In this paper, we argue that both views are mistaken because they both focus on net capital flows. Recent research suggests, on the contrary, the importance of international gross capital flows related to financial liberalization. However, our argument goes further in order to demonstrate that the analysis of the consequences of international gross capital flows were already at the core of the Triffin dilemma, as well as in wider debates about the inherent instability of the international monetary power of individual countries, before and after World War II.
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Andreas Kern and Christian Fahrholz
This paper inquires into the root causes of global imbalances from an international trade perspective. The purpose of the paper is to establish a conceptual framework that links…
Abstract
Purpose
This paper inquires into the root causes of global imbalances from an international trade perspective. The purpose of the paper is to establish a conceptual framework that links financial market governance, international trade and financial market integration, and to derive implications for the global financial crisis.
Design/methodology/approach
In order to analyze global imbalances, the paper draws on a theoretical Heckscher‐Ohlin‐Samuelson international trade model, in which it compares two open economies, solely differing in their financial market governance structures. Building on these findings, the paper extends the analysis to the role of financial market frictions in propagating global imbalances into excessive lending in high‐income economies.
Findings
To that extent, it argues that global imbalances are due to impasses in international production. This paper argues that countries seeking to suppress real appreciation have engaged in financial repression, which has, via financial globalization, translated into excessive expansion of financial service sectors in flexible market economies.
Research limitations/implications
In order to derive a tractable framework, the abstract from inter‐temporal aspects and from an in‐depth analysis of financial modelling issues. Owing to the static nature of the set‐up, the analytic link between global imbalances and the global financial crisis is intuitive.
Practical implications
Given that differences in national financial market governance influence the direction of international capital and trade flows, it argues for more international policy coordination in preventing future crisis.
Originality/value
The unique feature of the contribution is that it links financial market governance and international trade to international financial market integration in a tractable theoretical framework.
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Keywords
Global current account imbalances.
Details
DOI: 10.1108/OXAN-DB251241
ISSN: 2633-304X
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Geographic
Topical
Energy represents an important component of production costs and therefore, an increase in energy prices directly impacts economic productivity, unemployment, inflation, and…
Abstract
Energy represents an important component of production costs and therefore, an increase in energy prices directly impacts economic productivity, unemployment, inflation, and balance of payments equilibrium – often engendering currency devaluations. Until recently, the growth in demand for conventional fuels, mainly oil and gas, has widened imbalances between demand for and supply of energy. The effects of the surge in oil prices ripple across the entire global economy resulting in a redistribution of international liquidity. The latter creates global imbalances characterized by increasing balance of payment deficits and deteriorating the terms of trade, reducing the flow of non‐energy goods and services and increasing uncertainty of future global transactions. The aim of this paper is to shed some light on the impact of higher fuel prices on global liquidity management.
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The world has been gripped by the severest global financial (and economic) crisis since the Great Depression of the 1930s. How did it come about, what is being done to alleviate…
Abstract
The world has been gripped by the severest global financial (and economic) crisis since the Great Depression of the 1930s. How did it come about, what is being done to alleviate its consequences and, vitally, what measures should be undertaken to ensure against its recurrence are therefore questions that must be satisfactorily addressed. Preventing ‘financial crises’ from ever happening again is of course completely out of the question, they being inherent to the economic system as we understand it; rather that of those of the ‘severest’ kind. Fortunately, a vast literature has been accumulating on these issues, so the intention here is not to add to it and reinforce the perception that economists will offer more opinions on a single issue than the total membership of any assembled group thereof for the purpose. Hence, this is confined to a consideration of the most convincing explanations. Owing to space limitations, I shall not examine the recommendations for future action in all the mentioned areas but will do so for what is being offered to cater for the capital adequacy and pro-cyclicality since they are of the essence and involve many players.
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- Financial and economic crises
- capital adequacy and capital pro-cyclicality
- European Central Bank
- UK Financial Authority
- Turner Review
- de Larosière et al. Report
- leverage
- asset-backed securities
- collateralised debt obligations
- special purpose vehicles
- structured investment vehicles
- sub-prime mortgages
- securitisation
- credit rating agencies
- value-at-risk