Chart 10 shows the results of a recursive estimation of the long-run response of imports to changes in the components of GDP in the US, based on a simple dynamic equation: it indicates that, indeed, the elasticity of imports to exports has grown since the early 1990s. Current account sustainability depends also on variables that affect its financing.
However, the crisis itself suggests that we may have overestimated these benefits while underestimating the effects of risk contagion which separation helps to reduce. Regarding banks’ recovery and resolution, our group also made a proposal of additional designated bail-in instruments. These could be triggered in a relatively early phase of a bank’s financial distress to provide for recovery.