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International Capital Mobility and Financial Fragility - Part 2. The Demand for Safe Assets in Emerging Economies and Global Imbalances: New Empirical Evidence

Listed author(s):
  • Rudiger Ahrend


  • Cyrille Schwellnus


Mismatches between the supply and the demand of safe financial assets in fast-growing emerging countries have been singled out by economic theory as drivers of international capital flows and, ultimately, global current account imbalances. This paper assesses empirically the contribution of the search for safe assets to the size and composition of emerging countries’ international asset portfolios. Excess demand for safe assets in financially less-developed countries would imply that these countries hold disproportionately high shares of their total portfolios in foreign assets. Moreover, financially lessdeveloped countries would be expected to hold disproportionately high shares of their foreign portfolios in financially highly-developed countries, as ostensibly safe assets are predominantly produced by the latter. This paper finds little empirical support for these predictions. Financially less-developed countries allocate a larger proportion of their total holdings to domestic assets. Even when focusing on less-developed countries’ foreign portfolios, there is no evidence of a general bias toward the assets of financially highlydeveloped countries. Overall, asset mismatches do not appear to be significant drivers of asset allocation of financially less-developed countries. Flux de capitaux internationaux et fragilité financière 6 Partie 2 : La demande d'actifs sûrs des pays émergents et les déséquilibres financiers internationaux : Evidence empirique Le déséquilibre entre l’offre et la demande d’actifs financiers sûrs des pays émergents à forte croissance a été identifié comme une des explications théoriques des flux de capitaux internationaux et des déséquilibres mondiaux. Ce papier évalue empiriquement la contribution de la demande d’actifs sûrs au volume et à la composition des portefeuilles d’actifs des pays émergents. L’excès de demande d’actifs sûrs dans les pays financièrement moins développés impliquerait que ces pays affectent une partie disproportionnée de leurs portefeuilles globaux aux actifs extérieurs. Une partie disproportionnée des portefeuilles extérieurs devrait de surcroit être affectée aux pays financièrement très développés, ceux-ci produisant de grandes quantités d’actifs perçus comme sûrs. Ce papier ne trouve que peu de support empirique pour ces prédictions. Les pays financièrement moins développés affectent une plus grande partie de leurs portefeuilles globaux aux actifs domestiques que les pays financièrement très développés. L’analyse de la composition des portefeuilles extérieurs des pays financièrement moins développés ne permet pas non plus de détecter un biais systématique vers les pays financièrement très développés. Dans l’ensemble, le déséquilibre entre l’offre et la demande d’actifs sûrs des pays financièrement moins développés ne semble pas être à l’origine de leurs choix d’allocation d’actifs.

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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 903.

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Date of creation: 05 Jun 2012
Handle: RePEc:oec:ecoaaa:903-en
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