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Systemic Debt Crises in International Disequilibrium System


Hema Senanayake ,

University of Colombo, LK
About Hema
Doctoral Student of the Department of Economics
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W. Wimalaratana,

University of Colombo, LK
About W.
Department of Department of Economics, Faculty of Arts
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Kumar David

Hong Kong University of Science and Technology, HK
About Kumar
Former Dean
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Global Savings Glut (GSG) hypothesis has become the predominant and official theory attempted to explain the global financial crisis of 2008 and the Great Recession of 2008 – 2009. “… it is impossible to understand this crisis without reference to the global imbalances” (Bernanke, 2009). Any possible “global imbalance” must be connected to the international terms of trade and international exchange rate mechanism. GSG theory argues that the overwhelming credit (debt) growth occurred in the U.S. prior 2008, was due to savings made by certain trading partners, which resulted for the U.S. to have a persistent Current Account deficit and prevented the ability to increase interest rates by the U.S. monetary authorities to reduce current account deficit, as significant capital inflows from those countries took place. Yet, the paper observes that debt crises take place in countries where there are Current Account surpluses. This conundrum needs to be examined. Hence, the paper finds that another empirically verifiable proposition could possibly be used to explain the systemic debt crises better.

How to Cite: Senanayake, H., Wimalaratana, W. and David, K., 2020. Systemic Debt Crises in International Disequilibrium System. Sri Lanka Journal of Economic Research, 7(2), pp.115–127. DOI:
Published on 18 Sep 2020.
Peer Reviewed


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