Some of the adjustments might be a reflection of the unsustainable pre-crisis imbalances, some of them are cyclical, and some might be a result of structural shifts that boost competiveness, enable export to grow and narrow the gaps. Latest available results from the IMF external sector assessment points to a general conclusion that the region’s current account balances are broadly in line with fundamentals (five out of eleven counties have current account in line with fundamentals, four have stronger position, while three 15  show weaker position than what the fundamentals suggest). The vulnerabilities are more visible, when financial and NIIPs are observed, with several countries having moderately weaker positions that indicates necessity for further policy changes, or bold structural reforms to improve the productivity and correct for the imbalances on the external front. Looking into the future, given  the uncertain global environment and the rising trade tensions, external flows and stock imbalances could widen again, although this would depend on the assumed policy responses in different countries. Further disruptions to trade and supply chains are one of the major risks that can affect the external imbalances. Higher tariffs on bilateral trade can come at significant economic cost, not only for the countries involved. These effects are greatly amplified by global supply chains, which transmit spillovers from bilateral tariffs, affecting countries up and down the value chain. Thus now more than ever there is an urgent need for policies that reduce external vulnerabilities, and prevent adverse spillovers. Bibliography  1.
9, 10 Growth has certainly been high over the last 12 months, so isn’t this a reason for tightening monetary policy? Here it is important to remember that monetary policy does not aim to stabilise growth. It aims to stabilise inflation and resource utilisation. The impact of increased growth on monetary policy depends on the impact of this growth on the forecasts for inflation and resource utilisation. Whether high growth indicates higher or lower resource utilisation depends on the reasons for the higher growth. In this respect there is no difference between growth and other indicators of the state of the economy. The extent to which they affect monetary policy depends solely on how they affect the forecasts for inflation and resource utilisation. If monetary policy is well-balanced in the initial position – a strong assumption – and growth shifts both the inflation forecast and the resource-utilisation forecast upwards, then increased growth is a reason for tightening monetary policy. However, if monetary policy is not well-  6  See for example Dagens Industri (2011), Eklund and Svensson (2010), Financial Times (2011a, b) and Frisén (2010). 7  See Svensson (2005) and Svensson and Tetlow (2005). 8  One possible exception may be if the repo-rate path were to pose a threat to financial stability and there were no other means that could be used to tackle the problem. See the discussion in Svensson (2010b, c). 9  See Giavazzi and Mishkin (2006) and Mishkin (2010).