Global imbalances


Several policy measures should have been simultaneously taken in order to “fix” the imbalances worldwide:

  • The USA should have encouraging more exports and less imports
  • Consumption in Asia and Middle East should have been increased and China should have adopted a higher and flexible exchange rate
  • Western Europe should have been working more on the structural reforms to improve its potential for growth

Mohamed El-Rian from the FT (, How best to manage global imbalances, June 16 2008) mentions the possible “prisoners’ dilemma” in this case, due to the fact that parties risked being worse off if one acted and no others followed. Therefore the policy took a break from action, lacking proper coordination. Meanwhile, the imbalances worldwide got even worse, adding up to the future cost of solving the issues. He also highlights the fact that we are now witnessing an adjustment process, led by the relative prices.

“An increasingly interconnected world cannot maintain high growth and low inflation without a bold modernization of the mechanisms for international policy co-ordination”. (, article mentioned above)


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