IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/07-177.html
   My bibliography  Save this paper

Financing of Global Imbalances

Author

Listed:
  • Maria Teresa Punzi
  • W. Christopher Walker

Abstract

This paper analyzes the determinants of bond flows, now the dominant source of capital inflows, into the United States, as a means of establishing conditions affecting the financing of the U.S. current account deficit. To test the hypothesis that capital flows have become more responsive to changes in relative interest rates and other conditions across borders, a panel data set, showing bond flows from 12 separate jurisdictions into the United States, is constructed for the period 1994-2006 using adjusted U.S. Treasury International Capital Flow (TIC) data. Panel vector autoregression and instrumental variables approaches are used to estimate the impact of changes in interest rate differentials and other fundamentals on capital flows into the U.S. The paper finds evidence for an impact from interest rate differentials to bond inflows that has increased over time. Under one plausible set of theoretical assumptions, the increased sensitivity can be interpreted as resulting from a reduction in home bias on the part of non-US investors.

Suggested Citation

  • Maria Teresa Punzi & W. Christopher Walker, 2007. "Financing of Global Imbalances," IMF Working Papers 07/177, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:07/177
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=21164
    Download Restriction: no

    References listed on IDEAS

    as
    1. Solnik, Bruno H., 1974. "An equilibrium model of the international capital market," Journal of Economic Theory, Elsevier, vol. 8(4), pages 500-524, August.
    2. Michael P. Dooley & David Folkerts-Landau & Peter M. Garber, 2005. "An essay on the revived Bretton Woods system," Proceedings, Federal Reserve Bank of San Francisco, issue Feb.
    3. repec:tcd:wpaper:tep16 is not listed on IDEAS
    4. Philip R. Lane & Gian Maria Milesi-Ferretti, 2007. "A Global Perspective on External Positions," NBER Chapters,in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 67-102 National Bureau of Economic Research, Inc.
    5. Francis E. Warnock & Veronica C. Warnock, 2005. "International Capital Flows and U.S. Interest Rates," The Institute for International Integration Studies Discussion Paper Series iiisdp103, IIIS.
    6. Love, Inessa & Zicchino, Lea, 2002. "Financial development and dynamic investment behavior : evidence from panel vector autoregression," Policy Research Working Paper Series 2913, The World Bank.
    7. Tesar, Linda L. & Werner, Ingrid M., 1995. "Home bias and high turnover," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 467-492, August.
    8. Edison, Hali J. & Warnock, Francis E., 2008. "Cross-border listings, capital controls, and equity flows to emerging markets," Journal of International Money and Finance, Elsevier, vol. 27(6), pages 1013-1027, October.
    9. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Capital flows; Bond issues; Interest rate differential; United States; home bias; panel VAR; U.S. bond inflows; bond; bond flows; equation; correlation; statistics; Us Bond Inflows;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:07/177. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi). General contact details of provider: http://edirc.repec.org/data/imfffus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.