Will Global Imbalances Persist as the Recession Ends?

The past two years have seen the worst post-war global recession on record, coupled with a dramatic dislocation in financial markets that is unprecedented. While governments around the world have stepped in to shore up their banking sectors, and central banks have cut interest rates to record lows and even experimented with aggressive quantitative easing, the global imbalances that were a feature of the world economy prior to the crisis have also made their presence felt. With the recession now abating, this paper examines whether the foundations have been laid for the global economy to rebalance over the coming years. In particular, it presents estimates of the necessary re-pricing of exchange rates that would need to ensue for the imbalances to unwind completely – and, perhaps more realistically, the impact on the global imbalances if exchange rates do not adjust in the required fashion, but remain close to their current levels