Many observers believe that global imbalances have a lot to do with the economic crisis the world has been experiencing. The non-academics among you may have come across the argument on David McWilliams’ recent TV show, for example. So, the fact that these imbalances have been shrinking rapidly over the past year ought to be good news.
Richard Baldwin and Daria Taglioni have a very nice piece pointing out that these declining imbalances can be mechanically explained by the global trade collapse, and are likely to reemerge as world trade recovers. They also do an excellent job of surveying the reasons why trade fell so rapidly during 2008-9.