How Might a Disorderly Resolution of Global Imbalances Affect Global Wealth?
28 Pages Posted: 2 Aug 2006
Date Written: July 2006
Abstract
Partly reflecting structural advantages such a liquidity and strong investor protection, foreigners have built up extremely large positions in U.S. (as well as other dollar-denominated) financial assets. This paper describes the impact on global wealth of an unanticipated shock to U.S. financial markets. For every 10 percent decline in the dollar, U.S. equity markets, and U.S. bond markets, total wealth losses to foreigners could amount to about 5 percentage points of foreign GDP. Four stylized facts emerge: (i) foreign countries, particularly emerging markets, are more exposed to U.S. bonds than U.S. equities; (ii) U.S. exposure has increased for most countries; (iii) on average, U.S. asset holdings of developed countries and emerging markets (scaled by GDP) are very similar; and (iv) based on their reserves position, wealth losses of emerging market governments could on average amount to about 2¾ percentage points of their GDP.
Keywords: U.S. asset holdings, global asset portfolios, disorderly currency adjustments, global current account imbalances
JEL Classification: F31, F32, F34, F37
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Impact of Exchange Rate Movements on U.S. Foreign Debt
By Cédric Tille
-
An Equilibrium Model of Global Imbalances and Low Interest Rates
By Ricardo J. Caballero, Emmanuel Farhi, ...
-
An Equilibrium Model of "Global Imbalances" and Low Interest Rates
By Ricardo J. Caballero, Emmanuel Farhi, ...