Global imbalances from a stock perspective. The asymmetry between creditors and debtors

After the recent crisis, a reduction was observed in global current account (flow imbalances). Still, global disequilibria as measured in terms of countries' net foreign assets (stock imbalances), kept increasing. This paper studies whether stock imbalances have a stabilizing or destabilizing impact on countries' accumulation of external wealth and why. Our results show that in debtor economies the existing stock of net debt is stabilising as it helps to reduce trade imbalances, limit current account deficits and halt future debt accumulation. In creditor countries, instead, the positive stock of net foreign assets contributes - everything else equal - to increase future current account surpluses, as trade balances do not adjust, potentially leading to destabilizing dynamics in wealth accumulation. The asymmetry may have relevant implications for global trade and growth.