by Calculated Risk on 2/18/2011 08:44:00 AM

Fed Chairman Ben Bernanke argued this morning that the Fed is not to blame for inflation in other countries, and that those countries have tools to fight inflation ("including exchange rate adjustment, monetary and fiscal policies, and macroprudential measures"). He also argued the global imbalances are back, and countries "need to allow exchange rates to better reflect market fundamentals" and increase domestic demand (probably aimed at China).

From Fed Chairman Ben Bernanke: Global Imbalances: Links to Economic and Financial Stability. Excerpt:

In light of the relatively muted recoveries to date in the advanced economies, the central banks of those economies have generally continued accommodative monetary policies. Some observers, while acknowledging that an aborted recovery in the advanced economies would be highly detrimental to the emerging market economies, have nevertheless argued that these monetary policies are generating negative spillovers. In particular, concerns have centered on the strength of private capital flows to many emerging market economies, which, depending on their policy responses, could put upward pressure on their currencies, boost their inflation rates, or lead to asset price bubbles.

... policymakers in the emerging markets have a range of powerful--although admittedly imperfect--tools that they can use to manage their economies and prevent overheating, including exchange rate adjustment, monetary and fiscal policies, and macroprudential measures. ... it should be borne in mind that spillovers can go both ways. For example, resurgent demand in the emerging markets has contributed significantly to the sharp recent run-up in global commodity prices. More generally, the maintenance of undervalued currencies by some countries has contributed to a pattern of global spending that is unbalanced and unsustainable.
...
To achieve a more balanced international system over time, countries with excessive and unsustainable trade surpluses will need to allow their exchange rates to better reflect market fundamentals and increase their efforts to substitute domestic demand for exports. At the same time, countries with large, persistent trade deficits must find ways to increase national saving, including putting fiscal policies on a more sustainable trajectory