1. Global Monetary Policy Divergence and the Reemergence of Global Imbalances
- Author:
- Daniel Gros
- Publication Date:
- 06-2018
- Content Type:
- Working Paper
- Institution:
- Council on Foreign Relations
- Abstract:
- Developed economies are paying remarkably little attention to coordinating their monetary policies. This is an unavoidable consequence of the independence of central banks, which faithfully follow their purely domestic mandates except in times of crisis. As a result, global monetary policies have reached unprecedented levels of divergence. This divergence is set to widen—primarily due to differences in the relative strength of labor markets—while global current account imbalances return. Meanwhile, exchange rates have not reacted as economists expected; the dollar has weakened even as policy rates have increased. Economic tensions will likely become more disruptive the longer global imbalances go uncorrected. Likewise, the global economy will become more vulnerable to shocks. Yet by focusing on bilateral trade imbalances, the United States has mistakenly singled out China when the global imbalances between the United States and the eurozone is the more critical issue. The growing global imbalances are reflected more in the eurozone current account surplus and U.S. fiscal policy than in China’s shrinking surplus.
- Topic:
- International Trade and Finance, Monetary Policy, Exchange Rate Policy, and Economic Inequality
- Political Geography:
- Global Focus