Breaking free of the triple coincidence in international finance

Stefan Avdjiev, Robert McCauley and Hyun Song Shin

No 524, BIS Working Papers from Bank for International Settlements

Abstract: The traditional approach to international finance is to view capital flows as the financial counterpart to savings and investment decisions, assuming further that the GDP boundary defines both the decision-making unit and the currency area. This "triple coincidence" of GDP area, decision-making unit and currency area is an elegant simplification but misleads when financial flows are important in their own right. First, the neglect of gross flows, when only net flows are considered, can lead to misdiagnoses of financial vulnerability. Second, inattention to the effects of international currencies may lead to erroneous conclusions on exchange rate adjustment. Third, sectoral differences between corporate and official sector positions can distort welfare conclusions on the consequences of currency depreciation, as macroeconomic risks may be underestimated. This paper illustrates the pitfalls of the triple coincidence through a series of examples from the global financial system in recent years and examines alternative analytical frameworks based on balance sheets as the unit of analysis.

Keywords: capital flows; global liquidity; international currencies (search for similar items in EconPapers)
Pages: 41 pages
Date: 2015-10
New Economics Papers: this item is included in nep-ifn, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (47)

Downloads: (external link)
http://www.bis.org/publ/work524.pdf Full PDF document (application/pdf)
http://www.bis.org/publ/work524.htm (text/html)

Related works:
Chapter: Breaking free of the triple coincidence in international finance (2017)
Journal Article: Breaking free of the triple coincidence in international finance (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:524

Access Statistics for this paper

More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().