External Adjustment and the Global Crisis
By Philip R. Lane, G. Milesi-Ferretti. Social Science Research Network, 2011
347 citations recorded by the source corpus.
The period preceding the global financial crisis was characterized by a substantial widening of current account imbalances across the world. Since the onset of the crisis, these imbalances have contracted to a significant extent. In this paper, we analyze the ongoing process of external adjustment in advanced economies and emerging markets. We find that countries whose pre-crisis current account balances were in excess of what could be explained by standard economic fundamentals have experienced the largest contractions in their external balance. We subsequently examine the contributions of real exchange rates, domestic demand and domestic output to the adjustment process (allowing for differences across exchange rate regimes) and find that external adjustment in deficit countries was achieved primarily through demand compression, rather than expenditure switching. Finally, we show that 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.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/a5e8da713a590dd0af3b265b152b9ac4da25326a
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Economics and Econometrics
- Philip R. Lane
- G. Milesi-Ferretti
- G. Zucman
- David E. Cook
- Alan Sutherland
- Michael B. Devereux
- Nicolas Coeurdacier
- Christopher Hajzler
In Finance
- Philip R. Lane
- G. Milesi-Ferretti
- G. Zucman
- Nicolas Coeurdacier
- David E. Cook
- Christopher Hajzler
- Jay C. Shambaugh
- Alan Sutherland
Citations in the corpus
- International Currency Exposures, Valuation Effects, and the Global Financial Crisis (2015, neutral): “…of the international valuation mechanism in relation to the cross-border distribution of the costs of the 2008-2009 global financial crisis (Milesi-Ferretti 2009, Acharya and Schnabl 2010, European Commission 2010, Gourinchas et al 2012, Lane 2012, Lane 2013a, Lane and Milesi-Ferretti 2014).”
- Financial Globalisation and the Crisis (2012, positive): “For instance, Lane and Milesi-Ferretti (2012) calculate that liquidity inflows grew from virtually zero during the pre-crisis period to 2010 values of 54 % of GDP for Ireland, 22 % for Greece and 17 % for Portugal.”
- Capital Flows in the Euro Area (2013, background): “…adjustment would surely have been larger in the absence of cross-border ESCB liquidity flows (as reflected in Target 2 balances) and official EU/IMF funding to Greece, Ireland and Portugal (Cecchetti et al 2012, Lane and Milesi-Ferretti 2012, Merler and Pisani-Ferry 2012, Auer 2013, Whelan 2013).”
- Domestic Credit Growth and International Capital Flows (2013, neutral): “In related fashion, Lane and Milesi-Ferretti (2012) show that above-normal current account deficits during the pre-crisis period was significantly associated with major declines in domestic demand and sharp reversals in private capital flows over 2008-2010.”
- The External Wealth of Nations Revisited: International Financial Integration in the Aftermath of the Global Financial Crisis (2018, background): “…economies.1 Other relevant recent contributions include the analysis of the cross-border valuation effects associated with the decline in the US asset-backed securities market in 2008 provided by 1 On the evolution of net external positions see, among others, Lane and Milesi-Ferretti (2012, 2015).”