Global Macroeconomic Imbalances after the Crisis: From the Great Moderation to Secular Stagnation

Abstract

After the global financial crisis, economists have been downbeat about the growth prospects of the capitalist world economy, leading many to argue that we have re-entered a period of “secular stagnation”. The phenomenon of secular stagnation is intrinsically connected to the evolution of global macroeconomic imbalances. During the pre-crisis era of the “Great Moderation”, the widening of global and European trade imbalances temporarily alleviated the problem of secular stagnation by forging a symbiotic yet unsustainable relationship between debt-financed consumption-led growth models in deficit countries and export-led growth models in surplus countries. The re-surfacing of secular stagnation and the asymmetric adjustment of these imbalances after the crisis can both be traced back to the domestic political constraints experienced by many advanced market economies in trying to revive their pre-crisis growth models.

Keywords:

• Global financial crisis
• euro crisis
• imbalances
• secular stagnation
• great moderation
• varieties of capitalism

Notes

¹ Bernanke, “Great Moderation”.

² Bini Smaghi, “Financial Crisis and Global Imbalances”; Dunaway, Global Imbalances and Financial Crisis; Obstfeld and Rogoff, Global Imbalances and Financial Crisis.

³ Lapavitsas et al., “Eurozone Crisis: Beggar Thyself”; Shambaugh, “Europe’s Three Crises”.

⁴ Summers, “Demand-Side Secular Stagnation”.

⁵ Eichengreen, “Requiem for Global Imbalances”.

⁶ Bernanke, “Global Savings Glut”.

⁷ Dumas, China and America; Wolf, Fixing Global Finance.

⁸ It is called the Bretton Woods II hypothesis because the configuration resembles the original Bretton Woods system during the 1950s and 1960s, when Western countries strengthened their export competitiveness by pegging their exchange rate against the dollar. Dooley et al., “Revived Bretton Woods”.

⁹ Aizenman and Lee, “International Reserves”; Ocampo, “Instability and Inequities”.

¹⁰ Roubini and Setser, “The US as a Net Debtor”; Chinn, Getting Serious about Twin Deficits; Obstfeld and Rogoff, Global Current Account Imbalances.

¹¹ Ahrend et al. , “Factors behind Interest Rates, 15.

¹² Warnock and Warnock, “International Capital Flows”.

¹³ Roubini and Setser, “The US as a Net Debtor”.

¹⁴ Setser, “Return of East Asian Savings Glut”, 1.

¹⁵ Ibid., 6.

¹⁶ Eichengreen, “Blueprint for IMF Reform”, 166.

¹⁷ Frieden, “Political economy of adjustment”; Walter, Financial Crises.

¹⁸ Iversen and Soskice, “Modern Capitalism”; see also Kalinowski, “Second Image IPE”.

¹⁹ Schwartz, Subprime Nation; Vermeiren, Power and Imbalances.

²⁰ Kalinowski, “Second Image IPE”.

²¹ Schwartz, Subprime Nation; Vermeiren, Power and Imbalances.

²² Akyuz, “Export Dependence and Sustainability”.

²³ Wolf, “Two Cheers”; IMF, “China: Consultation IV” (2012).

²⁴ IMF, “China: Consultation IV” (2016).

²⁵ Holslag, “Geoeconomics in a globalized world”.

²⁶ Iversen and Soskice, “A Structural-Institutional Explanation”; Hall, “Varieties of Capitalism”; Johnson and Regan, “European monetary integration”.

²⁷ Hancké, Unions, Central Banks; Johnston et al., “Comparative Institutional Advantage”.

²⁸ Vermeiren, Power and Imbalances.

²⁹ De Ville and Vermeiren, Rising Powers and Economic Crisis.

³⁰ Vermeiren, Power and Imbalances.

³¹ Jacobs and Mazzucato, “Rethinking Capitalism”.

³² Summers, “Demand-Side Secular Stagnation”, 69.

³³ See also Eggertson et al., Secular Stagnation in Open Economy; Delong and Summers, Fiscal Policy in Depressed Economy.

³⁴ Bernanke, “Secular Stagnation”.

³⁵ Ibid.

³⁶ Borio, “Secular stagnation”, 2.

³⁷ Blyth and Matthijs, “Black Swans, Lame Ducks”, 215.

³⁸ Korpi, “Great Trough”.

³⁹ Brown, “Income Distribution”.

⁴⁰ Stockhammer, “Rising inequality”.

⁴¹ Soskice, “Macroeconomics and Varieties of Capitalism”; see also Iversen and Soskice, “Modern Capitalism”; Hope and Soskice, “Growth Models, Varieties of Capitalism”.

⁴² Iversen and Soskice, “A Structural-institutional Explanation”.

⁴³ Blyth and Matthijs, “Black Swans, Lame Ducks”.

⁴⁴ Mandelkern, “Explaining the striking similarity”.

⁴⁵ Erturk, Post-crisis central bank unconventional policies, 9.

⁴⁶ Lazonick and O’Sullivan, “Maximizing shareholder value”.

⁴⁷ Schwartz, “Wealth Inequality”

⁴⁸ Feroli et al., “Housing, Monetary Policy”.

⁴⁹ Cynamon and Fazzari, “Rising inequality and stagnation”, 181.

⁵⁰ Eggertson et al., Secular Stagnation in Open Economy; see also Caballero et al., “Currency Wars”.

⁵¹ Scharpf, “Forced Structural Convergence”.

⁵² Matthijs, “Euro’s “Winner-Take-All” Political Economy”, 416.