Business Intelligence

External Adjustment And The Global Crisis

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Executive Summary

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, the authors analyze the ongoing process of external adjustment in advanced economies and emerging markets. They 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.

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