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Global Imbalances, Risk, and the Great Recession

Martin Evans ()

No gueconwpa~13-13-07, Working Papers from Georgetown University, Department of Economics

Abstract: This paper describes a new analytical framework for the quantitative assessment of international external positions. The framework links each country's current net foreign asset position to its current trade flows, forecasts of future trade flows, and expectations concerning future returns on foreign assets and liabilities in an environment where countries cannot run Ponzi schemes or exploit arbitrage opportunities in world financial markets. It provides guidance on how external positions should be measured in the data, and on how the sustainability of a country's current position can be assessed. To illustrate its usefulness, I study the external positions of 12 countries (Australia, Canada, China, France, Germany, India, Italy, Japan, South Korea, Thailand, The United States and The United Kingdom) between 1970 and 2011. In particular, I examine how changes in the perceived risk associated with future returns across world financial markets contributed to evolution of external positions before the 2008 financial crisis, and during the ensuing Great Recession.

Keywords: Global Imbalances; Foreign Asset Positions; Current Accounts; International Debt; International Solvency; Great Recession (search for similar items in EconPapers)
JEL-codes: F31 F32 F34 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn, nep-opm and nep-sea
Date: 2013-11-04
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