International Capital Flows and Debt Dynamics

July 1, 2012

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Format: Chicago

Martin D Evans. International Capital Flows and Debt Dynamics, (USA: International Monetary Fund, 2012) accessed September 27, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper presents a new model for studying international capital flows and debt dynamics that emphasizes the role played by expectations concerning future trade flows and returns. I use the model to estimate the drivers of the U.S. external position and capital flows between 1973 and 2008. The estimates show that most of the secular rise in U.S. international indebtedness is attributable to growing optimism about future returns on U.S. holdings of foreign equity and FDI assets. They also show that the transformation of world savings into risky assets by the U.S. had little effect on its external position, but the expected future real depreciation of the dollar allowed the U.S. to sustain a higher level of international debt after the 1990s.

Subject: Balance of payments, Capital flows, External position, Foreign assets, Foreign liabilities, International trade, Trade balance

Keywords: Capital flow, Capital Flows, Exorbitant Privilege, External Imbalances, Foreign assets, Foreign liabilities, International Debt, International Solvency, Liability portfolio, Liability position, Log return, Present value, Return differential, Trade balance, WP

Publication Details

Pages:

59
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/175
Stock No:

WPIEA2012175
ISBN:

9781475505238
ISSN:

1018-5941

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