The Policy Implications of Economic ImbalancesScottish Economic Society Royal Bank of Scotland Annaual Lecture, 2001

In this paper, I argue against the view that widening economic imbalances necessarily imply that the conjuncture is deteriorating, and more specifically against concluding that the UK imbalances, at the end of 2001, were clearly unsustainable. The term imbalance is in any case too widely used, and it is important to distinguish between stocks and flows, and therefore between an unsustainable level of debt and an unsustainable growth of debt. Policy–makers should be very reluctant about seeking to correct imbalances, as there is little certainty over what the ‘right’ level of debt, or current account, is at any particular time.