In this lecture I document the proliferation of gross international asset and liability positions and discuss some consequences for individual countries’ external adjustment processes and for global financial stability. In light of the rapid growth of gross global financial flows and the serious risks associated with them, one might wonder about the continuing relevance of the net financial flow measured by the current account balance. I argue that global current account imbalances remain an essential target for policy scrutiny, for financial as well as macroeconomic reasons. Nonetheless, it is critically important for policymakers to monitor as well the rapidly evolving structure of global gross assets and liabilities.
This IGC Working Paper is a reprint of a journal article - Journal of International Money and Finance (2012), 31 (3) : 469-480 [doi:10.1016/j.jimonfin.2011.10.003]. It was also a Keynote address to the 15th International Conference on Macroeconomic Analysis and International Finance, 26–28 May, 2011, University of Crete, Rethymno, Greece.
Obstfeld, M. Financial flows, financial crises, and global imbalances. International Growth Centre (IGC), London, UK (2012) 14 pp.