Differences in financial systems are often named as a prime candidate for the current state of global imbalances. This paper argues that the process of capital liberalization can explain a substantial fraction of the US net external liabilities. We present a simple two-country model with an...

Differences in financial systems are often named as a prime candidate for the current state of global imbalances. This paper argues that the process of capital liberalization can explain a substantial fraction of the US net external liabilities. We present a simple two-country model with an...

An influential explanation for the recent rise in the U.S. current account deficit is the boom in U.S. productivity. As U.S. productivity surged in the mid-1990s, capital was attracted to the U.S. to take advantage of the higher real returns. Using a two country general equilibrium model, this...

This paper examines external adjustment in the United States, Japan and Germany from the perspective of net foreign asset positions. It asks two questions: What are, in the long run, the determinants of net foreign asset equilibrium? and: What are, in the short run, some of the adjustment...

The Pessimists and the Optimists disagree whether the US external deficits and the associated buildup of US net foreign liabilities are problems that require urgent attention. A warning signal should be that the debt ratio deviates significantly from the optimal ratio. The optimal debt ratio or...

Since the late-1990s, the global economy is characterised by historically low risk premia and an unprecedented widening of external imbalances. This paper explores to what extent these two global trends can be understood as a reaction to three structural shocks in different regions of the global...

This paper extends the model of Engler et al. (2007) on the adjustment of the US current account to a three-country world economy. This allows an analysis of the differential impact of a reversal of the US current account on Europe and Asia. In particular, the outcomes under different exchange...

We analyze the global imbalances and the required adjustments for rebalancing in current accounts and real exchange rates. We set up a two-country two-sector model for the US-China with two asymmetries. First, we assume that the size of China initially is one third of the US but its size becomes...

We use a quantitative equilibrium model with houses, collateralized debt, and foreign borrowing to study the impact of global imbalances on the U.S. economy in the 2000s. Our results suggest that the dynamics of foreign capital flows account for between one-fourth and one-third of the increase...

From 1960-2009, the U.S. current account balance has tended to decline during expansions and improve in recessions. We argue that trend shocks to productivity can help explain the countercyclical U.S. current account. Our framework is a two-country, two-good real business cycle (RBC) model in...