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A Global Perspective on External Positions

In: G7 Current Account Imbalances: Sustainability and Adjustment

  • Philip R. Lane
  • Gian Maria Milesi-Ferretti

The paper highlights the increased dispersion in net external positions in recent years, particularly among industrial countries. It provides a simple accounting framework that disentangles the factors driving the accumulation of external assets and liabilities (such as trade imbalances, investment income flows, and capital gains) for major external creditors and debtors. It also examines the factors driving the foreign asset portfolio of international investors, with a special focus on the weight of U.S. liabilities in the rest of the world’s stock of external assets. Finally, it relates the empirical evidence to the current debate about the roles of portfolio balance effects and exchange rate adjustment in shaping the external adjustment process.

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This chapter was published in:
  • Richard H. Clarida, 2007. "G7 Current Account Imbalances: Sustainability and Adjustment," NBER Books, National Bureau of Economic Research, Inc, number clar06-2, September.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 0122.
    Handle: RePEc:nbr:nberch:0122
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.org
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    1. Philip Lane & Gian Maria Milesi-Ferretti, 2001. "THE EXTERNAL WEALTH OF NATIONS: Measures of Foreign Assets and Liabilities For Industrial and Developing Countries," CEG Working Papers 20012, Trinity College Dublin, Department of Economics.
    2. Matthew Higgins & Thomas Klitgaard, 2004. "Reserve accumulation: implications for global capital flows and financial markets," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 10(Sep).
    3. William R. Cline, 2005. "United States as a Debtor Nation, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3993, May.
    4. Sebastian Edwards, 2005. "Is the U.S. Current Account Deficit Sustainable? And If Not, How Costly is Adjustment Likely To Be?," NBER Working Papers 11541, National Bureau of Economic Research, Inc.
    5. Richard Portes & Helene Rey, 1999. "The Determinants of Cross-Border Equity Flows," NBER Working Papers 7336, National Bureau of Economic Research, Inc.
    6. Benigno, Pierpaolo, 2001. "Price Stability with Imperfect Financial Integration," CEPR Discussion Papers 2854, C.E.P.R. Discussion Papers.
    7. Harald Hau & Helene Rey, 2004. "Can Portfolio Rebalancing Explain the Dynamics of Equity Returns, Equity Flows, and Exchange Rates?," NBER Working Papers 10476, National Bureau of Economic Research, Inc.
    8. Maurice Obstfeld, 2004. "External Adjustment," NBER Working Papers 10843, National Bureau of Economic Research, Inc.
    9. Pierre-Olivier Gourinchas & Helene Rey, 2005. "International Financial Adjustment," NBER Working Papers 11155, National Bureau of Economic Research, Inc.
    10. Corsetti, Giancarlo & Konstantinou, Panagiotis T, 2005. "Current Account Theory and the Dynamics of US Net Foreign Liabilities," CEPR Discussion Papers 4920, C.E.P.R. Discussion Papers.
    11. Olivier Blanchard & Francesco Giavazzi & Filipa Sa, 2005. "The U.S. Current Account and the Dollar," NBER Working Papers 11137, National Bureau of Economic Research, Inc.
    12. Henderson, Dale W. & Rogoff, Kenneth, 1982. "Negative net foreign asset positions and stability in a world portfolio balance model," Journal of International Economics, Elsevier, vol. 13(1-2), pages 85-104, August.
    13. Bohn, Henning & Tesar, Linda L, 1996. "U.S. Equity Investment in Foreign Markets: Portfolio Rebalancing or Return Chasing?," American Economic Review, American Economic Association, vol. 86(2), pages 77-81, May.
    14. Gian-Maria Milesi-Ferretti & Philip R. Lane, 2005. "Financial Globalization and Exchange Rates," IMF Working Papers 05/3, International Monetary Fund.
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