Past Event

Global Excess Imbalances: How worried should we be?

This event will discuss excess external imbalances, risks from current configuration of imbalances, and potential policy responses to help correct imbalances while supporting global growth.

Date: September 26, 2017, 12:30 pm Topic: Global economy and trade

VIDEO & AUDIO

Event materials

Presentation by Luis Cubeddu and Gustavo Adler

SUMMARY

Global imbalances have fallen from pre-Global Financial crisis peaks, yet levels are still comparatively high to the 90s and divergences are quite large. The composition of imbalances has shifted away from emerging economies to advanced economies. Following the IMF External Sector Report published in July, this event discussed the current IMF methodology for assessing external imbalances, risks from the current composition of imbalances and potential policy responses to correct them.
Only one third of current global imbalances are deemed excessive
A starting point in the discussion was that while global imbalances can point to risks and vulnerabilities in the economy, not all imbalances are undesirable. This is why the IMF methodology relies on a multidimensional approach that combines judgment with a numerical assessment. Empirical models are built to map countries’ fundamentals, features and policies and link them to the current account and/or the Real Effective Exchange Rate (REER).

Currently two thirds of the global imbalances are deemed to be desirable and appropriate. Between 2013 and 2016 excessive imbalances have remained broadly unchanged. The composition, however, has changed from emerging economies to advanced economies, such as the United States and the United Kingdom.

Persistence in excess imbalances suggest that the adjustment mechanisms in place appear to be weak

It is necessary to identify the policy gaps underlying the excess imbalances. The IMF report shows that fiscal policy plays a key role in driving imbalances, especially in countries with large Current Account (CA) gaps such as Thailand, Germany and Korea. On the other hand, foreign exchange intervention has played a very limited role – over the last 3 years the picture has changed dramatically and there are very few countries with significant reserve accumulation.

When the exchange rate moves very rapidly, the effects take some time to materialise in the CA due to lag effects. This is the case for Mexico and China, and it may also be the case for the United Kingdom – the impact of Brexit in the UK’s external position is not visible as the depreciation has not yet fed into the country’s current account.

The concentration of excess deficits in a few advanced economies shows that currently excess deficits are in the countries that can finance them. However, there should not be complacency towards the associated risks: the risk of protectionist actions and of growing divergences in stock positions, implying disruptive adjustments down the road.
Structural reforms are the main way to address distortions that are behind persisting imbalances. Countries such as France, Spain and Italy need to rely on fiscal and structural policies to engineer depreciation, given that they have no control over monetary policy. For Germany, a use of fiscal policy is suggested to encourage increased productivity and foster private investment while reducing the Current Account gap. This is in the interest of the country mostly given the opportunity cost of investing abroad – in a similar fashion, for many surplus countries the rates of return of domestic investment could be greater than abroad. The possibility of expanding domestic demand is another incentive. Finally, it was discussed that the capital account can also play an important role in changing the Net International Investment Position, as most EU transfers are in the capital account.
During the event, a myriad of questions were raised. For instance, it was noted that the corporate sector saves much more in surplus countries – could dividend policy, taxation or domestic capital markets help explain this behaviour? How are Current Account deficits being financed? What is the role of pension schemes? These issues should be further analysed as they can help explain the current dynamics.

Notes by Inês Goncalves Raposo

Schedule

Sep 26, 2017

12:30-13:00

Check in and lunch

13:00-13:30

Presentation

Chair: Maria Demertzis, Deputy Director

Gustavo Adler, Deputy Division Chief of Open Economy Macroeconomics Division, Research Department, IMF

Luis Cubeddu, Chief of Open Economy, Macroeconomics Division, Research Department, IMF

13:30-13:45

Comments

Zsolt Darvas, Senior Fellow

13:45-14:30

Q&A

Chair: Maria Demertzis, Deputy Director

14:30

End

Speakers

Gustavo Adler

Deputy Division Chief of Open Economy Macroeconomics Division, Research Department, IMF

Zsolt Darvas

Senior Fellow

Maria Demertzis

Deputy Director

Luis Cubeddu

Chief of Open Economy, Macroeconomics Division, Research Department, IMF

Location & Contact

Bruegel, Rue de la Charité 33, 1210 Brussels

Matilda Sevon

[email protected]

Read about event
 

Past Event

Past Event

Monetary policy in the time of climate change

How does climate change influence monetary policy in the eurozone? What potential monetary policy measures should be taken up to address climate risks?

Speakers: Cornelia Holthausen, Jean Pisani-Ferry and Guntram B. Wolff Topic: Green economy, Macroeconomic policy Date: October 20, 2021
Read about event
 

Past Event

Past Event

A hybrid future of work

Addressing employers’ and employees’ challenges.

Speakers: Julie Brophy, Joost Korte, Laura Nurski, Renske Paans and Alex A. Saliba Topic: Digital economy and innovation, Inclusive growth Date: October 19, 2021
Read about event More on this topic
 

Past Event

Past Event

What is the link between biodiversity loss and financial instability?

Biodiversity loss impacts financial stability. How big is the risk of biodiversity loss for financial institutions?

Speakers: Sylvie Goulard, Romain Svartzman, Guntram B. Wolff and Michael Wilkins Topic: Banking and capital markets Date: October 5, 2021
Read about event More on this topic
 

Past Event

Past Event

How to strike the right balance between the three pillars of the pension system?

In this event panelists will discuss the future of European pension schemes.

Speakers: Elsa Fornero, Svend E. Hougaard Jensen and Suvi-Anne Siimes Topic: Macroeconomic policy Date: September 23, 2021
Read about event More on this topic
 

Past Event

Past Event

Academic lecture: International technology competition

Bruegel Annual Meetings, Day 3 - On the final day of the Annual Meetings, our Director Guntram Wolf sits with Keyu Jin to discuss international competition policy.

Speakers: Keyu Jin, J. Scott Marcus and Guntram B. Wolff Topic: Digital economy and innovation Location: Palais des Académies, Rue Ducale 1, Brussels Date: September 3, 2021
Read about event
 

Past Event

Past Event

Conference on the Future of Europe: envisioning EU citizens engagement

Bruegel Annual Meetings, Day 3 - Panellists will discuss different options and what they may entail while revisiting the debates on the future of Europe at national and EU-level that have been conducted thus far.

Speakers: Caroline de Gruyter, Kalypso Nicolaïdis, Niclas Poitiers and György Szapáry Topic: European governance, Macroeconomic policy Location: Palais des Academies, Rue Ducale 1 Date: September 3, 2021
Read about event
 

Past Event

Past Event

Sustainable finance

Bruegel Annual Meetings, Day 3 - In this session on the final day of the Meetings, our panelists will discuss the future of finance and its sustainability.

Speakers: Maria Demertzis, Alberto De Paoli, Pierre Heilbronn and Alexandra Jour-Schroeder Topic: Banking and capital markets, Green economy Location: Palais des Académies, Rue Ducale 1, Brussels Date: September 3, 2021
Read about event More on this topic
 

Past Event

Past Event

The role of the EU's trade strategy for an inclusive and sustainable recovery

Bruegel Annual Meetings, Day 3 - We are delighted to welcome Valdis Dombrovskis, Executive Vice President of the European Commission for An Economy that Works for People to talk about Europe's trade strategy.

Speakers: Valdis Dombrovskis, Alicia García-Herrero and Guntram B. Wolff Topic: Macroeconomic policy Location: Palais des Academies, Rue Ducale 1 Date: September 3, 2021
Read about event More on this topic
 

Past Event

Past Event

Navigating a more polarised world: policy implications

Bruegel Annual Meetings, Day 2 - Are we entering a new age in the relationship between international economics and global politics? Is Europe well-equipped for this new world?

Speakers: Hélène Rey, Jean Pisani-Ferry, Adam Tooze and Sabine Weyand Topic: Global economy and trade Location: Palais des Academies, Rue Ducale 1 Date: September 2, 2021
Read about event
 

Past Event

Past Event

Blending physical and virtual: shaping the new workplace

Bruegel Annual Meetings, Day 2 - This panel will cover the changes the COVID-19 pandemic made to our workplaces, and what to expect in the near future.

Speakers: Nicholas Bloom, Michael Froman, Mario Mariniello, Sara Matthieu and Luca Visentini Topic: Inclusive growth, Macroeconomic policy Location: Academy Palace Date: September 2, 2021
Read about event
 

Past Event

Past Event

Brave new digital industrial policy

Bruegel Annual Meetings, Day 2 - In this session our speakers will discuss innovation and digitalisation.

Speakers: Francesca Bria, Kerstin Jorna, Aura Salla, Marietje Schaake and Reinhilde Veugelers Topic: Digital economy and innovation, Inclusive growth Location: Palais des Académies, Rue Ducale 1, Brussels Date: September 2, 2021
Read about event More on this topic
 

Past Event

Past Event

Monetary and macroeconomic policies at the crossroads

Bruegel Annual Meetings, Day 2- In this session we would like to discuss monetary and macroeconomic policies after Covid-19.

Speakers: Grégory Claeys, Per Callesen, Gita Gopinath, Jorge Sicilia Serrano and Lawrence H. Summers Topic: Banking and capital markets Location: PALAIS DES ACADEMIES, RUE DUCALE 1 Date: September 2, 2021
Load more posts