Three essays on global imbalances

Abstract

This study assesses the global imbalances across three regions (Chapter I), from Korean economy context (Chapter II), and from the perspective of history of economic thought (Chapter III). Chapter I demonstrates the asymmetry of the international financial arrangement (IFA) by examining contrast adjustments in the triangular pattern of international private capital flows among the center, creditor, and debtor periphery. Based on the asymmetry it concludes that decentralized efforts by individual country have limitations and international coordination is inevitable to minimize the negative externalities of the capital flows in the world economy. Chapter II investigates the implications of global imbalances on the Korean economy by assessing the impact of Korea's foreign reserve accumulation on the macro economy and analyzing the distributional impacts of an exchange rate. Chapter III studies the global imbalances and international capital flows in a broader political-economy context from the history of economic thought. It observes that from the historical perspective challenges for policy makers and economist' philosophical foundation on global imbalances and international capital flows could be a parallel from the past to the present, if not an exact repetition. Using updated data it finds that a J-shaped proposition may be more relevant rather than the conventional U-shaped pattern of financial globalization because after 2000 the stock of assets has shown a drastic upward trend which is not comparable to that of the first era of financial globalization. To explain the changing pattern of financial globalization it suggests an analytical framework by combining 'Trilemma', tension between regulation and financial market, and the role of key currency or hegemonic money. It also identifies two competing views on the financial globalization by introducing the British Currency and Banking School debate in mid-19th century, analyzing their impacts on the theory of money and economic beliefs, and then tracing their trajectories to late economic thoughts such as the Neoclassical Synthesis, Modern monetarists, Modern Austrian School, Keynesian, New-Keynesian, New-Classical and Post-Keynesian economics.