Policy

Rethinking global imbalances: drivers, risks and policy priorities

[Bank of England Staff Discussion Paper | March 2026] 

(with Ambrogio Cesa-Bianchi, Dan Christen, Peter Denton, Will Dison, Aydan Dogan, Ida Hjortsoe, Mark Joy, Jeremy Martin, Roger Vicquery, Simon Whitaker)

This paper takes a fresh analytical look at the drivers and consequences of global imbalances. It finds the following: (i) persistent excess imbalances are driven primarily by domestic macroeconomic factors, consistent with the literature; (ii) however, industrial policy, which there has been a resurgence of globally, can have second-order impacts on the current account over the short to medium term under certain conditions; (iii) it may also have impacts over the longer term, but our collective understanding of these impacts, and their spillovers, is partial; (iv) global external balance sheets show vulnerabilities that could interact with other global financial stability risks in disorderly unwind scenarios.