IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/19240.html
   My bibliography  Save this paper

External Adjustment, Global Imbalances and Valuation Effects

Author

Listed:
  • Pierre-Olivier Gourinchas
  • Hélène Rey

Abstract

We provide an overview of the recent developments of the literature on the determinants of long term capital flows, global imbalances and valuation effects. We present the main stylized facts of the new international financial landscape in which external balance sheets of countries have grown in size and discuss implications for the international monetary and financial system.

Suggested Citation

  • Pierre-Olivier Gourinchas & Hélène Rey, 2013. "External Adjustment, Global Imbalances and Valuation Effects," NBER Working Papers 19240, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19240
    Note: AP CF IFM ITI ME
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w19240.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Klaus Adam & Pei Kuang & Albert Marcet, 2012. "House Price Booms and the Current Account," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 77-122.
    2. Angeletos, George-Marios & Panousi, Vasia, 2011. "Financial integration, entrepreneurial risk and global dynamics," Journal of Economic Theory, Elsevier, vol. 146(3), pages 863-896, May.
    3. Caselli, Francesco, 2005. "Accounting for Cross-Country Income Differences," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 9, pages 679-741, Elsevier.
    4. Hamid Faruqee & Douglas Laxton & Dirk Muir & Paolo A. Pesenti, 2007. "Smooth Landing or Crash? Model-Based Scenarios of Global Current Account Rebalancing," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 377-456, National Bureau of Economic Research, Inc.
    5. Bacchetta Philippe & Benhima Kenza, 2010. "The Demand for Liquid Assets, Corporate Saving, and Global Imbalances," Cahiers de Recherches Economiques du Département d'économie 10.12, Université de Lausanne, Faculté des HEC, Département d’économie.
    6. Nicolas Coeurdacier & Hélène Rey, 2013. "Home Bias in Open Economy Financial Macroeconomics," Journal of Economic Literature, American Economic Association, vol. 51(1), pages 63-115, March.
    7. Charles Engel & John H. Rogers, 2006. "The U.S. current account deficit and the expected share of world output," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
    8. Stephanie E. Curcuru & Charles P. Thomas & Francis E. Warnock, 2009. "Current Account Sustainability and Relative Reliability," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 5(1), pages 67-109.
    9. Aart Kraay & Jaume Ventura, 2000. "Current Accounts in Debtor and Creditor Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 115(4), pages 1137-1166.
    10. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May.
    11. Nicolas Coeurdacier & Stéphane Guibaud & Keyu Jin, 2015. "Credit Constraints and Growth in a Global Economy," American Economic Review, American Economic Association, vol. 105(9), pages 2838-2881, September.
    12. Olivier Jeanne, 2013. "Capital Account Policies and the Real Exchange Rate," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 9(1), pages 7-42.
    13. Robin Greenwood & Dimitri Vayanos, 2014. "Bond Supply and Excess Bond Returns," Review of Financial Studies, Society for Financial Studies, vol. 27(3), pages 663-713.
    14. Joseph Gruber & Steven Kamin, 2009. "Do Differences in Financial Development Explain the Global Pattern of Current Account Imbalances?," Review of International Economics, Wiley Blackwell, vol. 17(4), pages 667-688, September.
    15. Philippe Bacchetta & Kenza Benhima & Yannick Kalantzis, 2013. "Capital Controls with International Reserve Accumulation: Can This Be Optimal?," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(3), pages 229-262, July.
    16. Keyu Jin, 2012. "Industrial Structure and Capital Flows," American Economic Review, American Economic Association, vol. 102(5), pages 2111-2146, August.
    17. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    18. Mr. Gian M Milesi-Ferretti & Ms. Natalia T. Tamirisa & Mr. Francesco Strobbe, 2010. "Bilateral Financial Linkages and Global Imbalances: a View on The Eve of the Financial Crisis," IMF Working Papers 2010/257, International Monetary Fund.
    19. Matteo Maggiori, 2017. "Financial Intermediation, International Risk Sharing, and Reserve Currencies," American Economic Review, American Economic Association, vol. 107(10), pages 3038-3071, October.
    20. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
    21. Gabriel Zucman, 2013. "The Missing Wealth of Nations: Are Europe and the U.S. net Debtors or net Creditors?," The Quarterly Journal of Economics, Oxford University Press, vol. 128(3), pages 1321-1364.
    22. S. Rao Aiyagari, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 659-684.
    23. G. M. Grossman & K. Rogoff (ed.), 1995. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 3, number 3.
    24. Christopher M. Meissner & Alan M. Taylor, 2006. "Losing our marbles in the new century?: the great rebalancing in historical perspective," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 51.
    25. Caselli, Francesco, 2005. "Accounting for cross-country income differences," LSE Research Online Documents on Economics 5266, London School of Economics and Political Science, LSE Library.
    26. Forbes, Kristin J., 2010. "Why do foreigners invest in the United States?," Journal of International Economics, Elsevier, vol. 80(1), pages 3-21, January.
    27. John Y. Campbell & John Cochrane, 1999. "Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 205-251, April.
    28. Paul R. Bergin & Steven M. Sheffrin, 2017. "Interest Rates, Exchange Rates and Present Value Models of the Current Account," World Scientific Book Chapters, in: International Macroeconomic Interdependence, chapter 10, pages 287-316, World Scientific Publishing Co. Pte. Ltd..
    29. Devereux, Michael B. & Sutherland, Alan, 2010. "Valuation effects and the dynamics of net external assets," Journal of International Economics, Elsevier, vol. 80(1), pages 129-143, January.
    30. Mark Aguiar & Gita Gopinath, 2007. "Emerging Market Business Cycles: The Cycle Is the Trend," Journal of Political Economy, University of Chicago Press, vol. 115, pages 69-102.
    31. Backus, David K. & Kehoe, Patrick J., 1989. "On the denomination of government debt : A critique of the portfolio balance approach," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 359-376, May.
    32. Giancarlo Corsetti & Panagiotis T. Konstantinou, 2012. "What Drives US Foreign Borrowing? Evidence on the External Adjustment to Transitory and Permanent Shocks," American Economic Review, American Economic Association, vol. 102(2), pages 1062-1092, April.
    33. Francisco J. Buera & Yongseok Shin, 2017. "Productivity Growth and Capital Flows: The Dynamics of Reforms," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(3), pages 147-185, July.
    34. Stephanie E. Curcuru & Tomas Dvorak & Francis E. Warnock, 2008. "Cross-Border Returns Differentials," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1495-1530.
    35. Tarek A. Hassan, 2013. "Country Size, Currency Unions, and International Asset Returns," Journal of Finance, American Finance Association, vol. 68(6), pages 2269-2308, December.
    36. Tille, Cédric, 2008. "Financial integration and the wealth effect of exchange rate fluctuations," Journal of International Economics, Elsevier, vol. 75(2), pages 283-294, July.
    37. Zheng Song & Kjetil Storesletten & Fabrizio Zilibotti, 2011. "Growing Like China," American Economic Review, American Economic Association, vol. 101(1), pages 196-233, February.
    38. Mr. Martin D Evans, 2012. "International Capital Flows and Debt Dynamics," IMF Working Papers 2012/175, International Monetary Fund.
    39. Martin Evans, 2012. "International Capital Flows and Debt Dynamics," Working Papers gueconwpa~12-12-04, Georgetown University, Department of Economics.
    40. Paul A. Samuelson, 2011. "Lifetime Portfolio Selection by Dynamic Stochastic Programming," World Scientific Book Chapters, in: Leonard C MacLean & Edward O Thorp & William T Ziemba (ed.), THE KELLY CAPITAL GROWTH INVESTMENT CRITERION THEORY and PRACTICE, chapter 31, pages 465-472, World Scientific Publishing Co. Pte. Ltd..
    41. Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2008. "Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 347-368, May.
    42. Ferrero, Andrea, 2010. "A structural decomposition of the U.S. trade balance: Productivity, demographics and fiscal policy," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 478-490, May.
    43. Gertler, Mark, 1999. "Government debt and social security in a life-cycle economy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 61-110, June.
    44. Krugman, Paul, 1980. "Vehicle Currencies and the Structure of International Exchange," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(3), pages 513-526, August.
    45. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 83-116.
    46. Maurice Obstfeld, 2011. "International Liquidity: The Fiscal Dimension," NBER Working Papers 17379, National Bureau of Economic Research, Inc.
    47. Nason, James M. & Rogers, John H., 2006. "The present-value model of the current account has been rejected: Round up the usual suspects," Journal of International Economics, Elsevier, vol. 68(1), pages 159-187, January.
    48. Pierre-Olivier Gourinchas & Hélène Rey, 2007. "From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 11-66, National Bureau of Economic Research, Inc.
    49. Evans, Martin D.D. & Hnatkovska, Viktoria, 2012. "A method for solving general equilibrium models with incomplete markets and many financial assets," Journal of Economic Dynamics and Control, Elsevier, vol. 36(12), pages 1909-1930.
    50. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2004. "The revived Bretton Woods system," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(4), pages 307-313.
    51. Pol Antràs & Ricardo J. Caballero, 2009. "Trade and Capital Flows: A Financial Frictions Perspective," Journal of Political Economy, University of Chicago Press, vol. 117(4), pages 701-744, August.
    52. Chinn, Menzie D. & Prasad, Eswar S., 2003. "Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration," Journal of International Economics, Elsevier, vol. 59(1), pages 47-76, January.
    53. repec:hal:spmain:info:hdl:2441/1shj1p7td8e0r5c9fcsnk8a91 is not listed on IDEAS
    54. Ghironi, Fabio & Iscan, Talan B. & Rebucci, Alessandro, 2008. "Net foreign asset positions and consumption dynamics in the international economy," Journal of International Money and Finance, Elsevier, vol. 27(8), pages 1337-1359, December.
    55. repec:hal:spmain:info:hdl:2441/c87bgksc18ba9tn72tqcganvu is not listed on IDEAS
    56. David Cass, 1965. "Optimum Growth in an Aggregative Model of Capital Accumulation," Review of Economic Studies, Oxford University Press, vol. 32(3), pages 233-240.
    57. Wallace, Neil, 1981. "A Modigliani-Miller Theorem for Open-Market Operations," American Economic Review, American Economic Association, vol. 71(3), pages 267-274, June.
    58. Flavia Corneli, 2009. "The Saving Glut Explanation of Global Imbalances: the Role of Underinvestment," Economics Working Papers ECO2009/41, European University Institute.
    59. Mr. Damiano Sandri, 2010. "Growth and Capital Flows with Risky Entrepreneurship," IMF Working Papers 2010/037, International Monetary Fund.
    60. Raghuram G. Rajan, 2005. "Has financial development made the world riskier?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 313-369.
    61. Marga Peeters & Nidal Sabri & Wassim Shahin (ed.), 2013. "Financial Integration," Financial and Monetary Policy Studies, Springer, number 978-3-642-35697-1, July.
    62. Philip Lane, 2013. "Financial Globalisation and the Crisis," Open Economies Review, Springer, vol. 24(3), pages 555-580, July.
    63. George-Marios Angeletos & Vasia Panousi, 2011. "Financial Integration, Entrepreneurial Risk and Global Imbalances," NBER Working Papers 16761, National Bureau of Economic Research, Inc.
    64. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-247, April.
    65. M. Bruno, 1970. "Trade, Growth and Capital," Working papers 65, Massachusetts Institute of Technology (MIT), Department of Economics.
    66. Caselli, Francesco, 2005. "Accounting for cross-country income differences," LSE Research Online Documents on Economics 3567, London School of Economics and Political Science, LSE Library.
    67. Quinn, Dennis, 1997. "The Correlates of Change in International Financial Regulation," American Political Science Review, Cambridge University Press, vol. 91(3), pages 531-551, September.
    68. Hamada, Koichi, 1969. "Optimal Capital Accumulation by an Economy Facing an International Capital Market," Journal of Political Economy, University of Chicago Press, vol. 77(4), pages 684-697, Part II, .
    69. Hyun Song Shin, 2012. "Global Banking Glut and Loan Risk Premium," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 60(2), pages 155-192, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gourinchas, Pierre-Olivier & Rey, Hélène, 2014. "External Adjustment, Global Imbalances, Valuation Effects," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 585-645, Elsevier.
    2. Gourinchas, Pierre-Olivier & Rey, Hélène, 2014. "Chapter 10 External Adjustment, Global Imbalances, Valuation Effects," Department of Economics, Working Paper Series qt42k8h7mp, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    3. Reinhardt, Dennis & Ricci, Luca Antonio & Tressel, Thierry, 2013. "International capital flows and development: Financial openness matters," Journal of International Economics, Elsevier, vol. 91(2), pages 235-251.
    4. Benhima, Kenza, 2013. "A reappraisal of the allocation puzzle through the portfolio approach," Journal of International Economics, Elsevier, vol. 89(2), pages 331-346.
    5. Gente, Karine & León-Ledesma, Miguel A. & Nourry, Carine, 2015. "External constraints and endogenous growth: Why didn't some countries benefit from capital flows?," Journal of International Money and Finance, Elsevier, vol. 56(C), pages 223-249.
    6. Zsofia Barany & Nicolas Coeurdacier & Stéphane Guibaud, 2015. "Fertility, Longevity and International Capital Flows," Sciences Po publications info:hdl:2441/5402sfihji9, Sciences Po.
    7. repec:hal:spmain:info:hdl:2441/5402sfihji9vea8rb66cd9nphe is not listed on IDEAS
    8. Chien, YiLi & Naknoi, Kanda, 2015. "The risk premium and long-run global imbalances," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 299-315.
    9. Nicolas Coeurdacier, 2016. "Fertility, Longevity, and Capital Flows," 2016 Meeting Papers 442, Society for Economic Dynamics.
    10. Margaux MacDonald, 2015. "Patterns of International Capital Flows and Productivity Growth: New Evidence," Review of International Economics, Wiley Blackwell, vol. 23(5), pages 846-872, November.
    11. Dennis Reinhardt, 2010. "Into the Allocation Puzzle - A Sectoral Analysis," Working Papers 10.02, Swiss National Bank, Study Center Gerzensee.
    12. Mika Nieminen, 2017. "Patterns of international capital flows and their implications for developing countries," WIDER Working Paper Series wp-2017-171, World Institute for Development Economic Research (UNU-WIDER).
    13. Zsofia Barany & Nicolas Coeurdacier & Stéphane Guibaud, 2015. "Fertility, Longevity and International Capital Flows," SciencePo Working papers hal-01164462, HAL.
    14. Zhang, Ning, 2019. "Country portfolios under global imbalances," European Economic Review, Elsevier, vol. 119(C), pages 302-317.
    15. Claudio Borio & Piti Disyatat, 2015. "Capital flows and the current account: Taking financing (more) seriously," BIS Working Papers 525, Bank for International Settlements.
    16. Mika Nieminen, 2017. "Patterns of international capital flows and their implications for developing countries," WIDER Working Paper Series 171, World Institute for Development Economic Research (UNU-WIDER).
    17. Wulff, Alexander & Heinemann, Maik, 2015. "Idiosyncratic Risk, Borrowing Constraints and Financial Integration - A Discussion of Ambiguous Results," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113165, Verein für Socialpolitik / German Economic Association.
    18. Maik Heinemann & Alexander Wulff, 2015. "Idiosyncratic Risk, Borrowing Constraints and Financial Integration - A Discussion of Ambiguous Results," Working Papers 2015019, Berlin Doctoral Program in Economics and Management Science (BDPEMS).
    19. Claudio Borio & Piti Disyatat, 2015. "Capital flows and the current account: Taking financing (more) seriously," BIS Working Papers 525, Bank for International Settlements.
    20. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95, July.

    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F3 - International Economics - - International Finance
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    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:nbr:nberwo:19240. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.