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International Capital Flows and Debt Dynamics

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  • Martin D. D. Evans

Abstract

This paper presents a new model for studying international capital flows and debt dynamics that emphasizes the role played by expectations concerning future trade flows and returns. I use the model to estimate the drivers of the U.S. external position and capital flows between 1973 and 2008. The estimates show that most of the secular rise in U.S. international indebtedness is attributable to growing optimism about future returns on U.S. holdings of foreign equity and FDI assets. They also show that the transformation of world savings into risky assets by the U.S. had little effect on its external position, but the expected future real depreciation of the dollar allowed the U.S. to sustain a higher level of international debt after the 1990s.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/175.

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Length: 59
Date of creation: 01 Jul 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/175

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Keywords: Capital flows; Economic models; External debt; Foreign direct investment; foreign asset; foreign assets; foreign liabilities; capital gains; net capital flows; net capital; net foreign asset; foreign asset position; net foreign asset position; capital flow; return on foreign assets; net capital flow; current account deficits; capital inflow; foreign asset holdings; international capital flows; international trade; discount rates; net foreign assets; foreign asset positions; international financial; international capital; capital loss; financial integration; globalization; net foreign asset positions; current account balance; financial markets; capital losses; equity prices; foreign securities; international financial flows; international investment; financial intermediation; determinants of capital flows; financial globalization; exchange rates; international finance; international financial integration; capital controls; foreign asset accumulation; current account deficit; international borrowing; securities prices; domestic equity; liberalization of capital accounts; capital accounts; capital gain;

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  12. Coeurdacier, Nicolas & Kollmann, Robert Miguel W. K. & Martin, Philippe J., 2008. "International portfolios, capital accumulation and foreign assets dynamics," Discussion Paper Series 1: Economic Studies 2008,19, Deutsche Bundesbank, Research Centre.
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  17. Habib, Maurizio Michael, 2010. "Excess returns on net foreign assets: the exorbitant privilege from a global perspective," Working Paper Series 1158, European Central Bank.
  18. Hnatkovska, Viktoria, 2010. "Home bias and high turnover: Dynamic portfolio choice with incomplete markets," Journal of International Economics, Elsevier, vol. 80(1), pages 113-128, January.
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