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What role has financial liberalization, including capital account liberalization, played in recent financial crises in emerging markets? What policy conclusions should one draw from this?

You can’t have smoke without fire. Recent economic history would suggest that neither can you have financial crises without weak macroeconomic fundamentals. Certainly, capital flows can increase vulnerability to, and the amplitude of, emerging market crises. Moreover, it is often capital flow reversals that signal the onset of financial crises in dramatic fashion.

While it is true that prohibiting global capital flows would prevent or dampen many economic crises, it does not necessarily follow that this is the appropriate policy course. If you can’t have smoke without fire, then it’s also true to say that you can’t have fire without tinder. Removing all tinder would surely prevent future fires, but we should not forget that learning to use fire was one of homo sapiens’ most important social evolutions.

This this is not to say that all capital flows are good flows, or even that restrictions on flows could not yield a pareto improving outcome. It is simply recognition that a certain degree of international mobility of capital is critically important if emerging and developing economies are to have some chance of converging with advanced economies. Continue reading →

What role did global imbalances play in the center (2007-) financial crisis? What were the primary causes of theses imbalances? What are the difficulties involved in resolving them?

Just as it takes two to tango, so current account imbalances require offsetting capital flows to keep international payments in balance. Global imbalances thus have two drivers: borrowers and lenders. In the middle of the last decade, the US’ growing twin fiscal and current account deficits were the focus of much debate. Continue reading →

Today marks the launch of Columbia’s Center on Global Economic Governance (CGEG), with Alan Krueger, Chairman of President Obama’s Council of Economic Advisers delivering the keynote address at its opening conference.

The concept behind CGEG is to bring together the best minds, from Columbia faculty and from outside, to focus on key issues in global economic governance and develop effective policy approaches.

With developed economies largely stagnant, emerging markets facing their own challenges, and growing intra-national equality the world over, we need now more than ever a new approach to global economic governance that puts people first. The advent of the G20 as the premier forum for global governance widened the circle beyond the traditional G7/G8 configuration, but its initial impetus has dissipated, while issues of legitimacy remain to be addressed.

With Jeffrey Sachs and PEPM’s own Guillermo Calvo on the panel alongside Krueger and others on the panel, I’m really looking forward to the opening conference.

You can watch the livestream here from 9am EST / 2pm GMT.

You can find my own recent thoughts on the evolution of Global Economic Governance here.

Last weekend, I had the great privilege of attending, as part of the Young Scholars’ Initiative, a sublime conference organized by the Institute of New Economic Thinking:

Paradigm Lost: Re-thinking Economics & Politics.

Leading lights of the economics profession came together with top policymakers and journalists to appraise the state of current economic thinking, and to chart a better way forward.

Conference highlights are viewable here. Continue reading →