Global current account imbalances were a major subject of concern in the years before the recent financial crisis. It is shown that the expected (negative) equilibrium relationship between net foreign assets and the trade balance that had held in the previous twenty years appeared to break down...

Theory suggests a significant positive relationship in long-run equilibrium between net foreign assets (NFA) as a proportion of GDP and real exchange rates. Empirical tests have ignored two issues: the large variation in cross-country trade/GDP ratios, which is likely to induce substantial...

Many currencies, especially those of countries with negative net foreign assets, tend to depreciate during times of financial turbulence. Using a panel of 26 currencies over the period 1/1997 - 6/2016, I show that the composition of net foreign assets matter for the exchange rate sensitivity to...

Rising current account and merchandise trade imbalances marked the years before the global financial and economic crisis. These imbalances either contributed to or precipitated the crisis and to the extent that they create systemic risks, it is desirable that they be reduced. There are many...

The present paper extends the Obstfeld and Rogoff (2005) framework of current account imbalances by the oil exporting countries as a fourth region. It sets the stage for a variety of analysis that can be conducted within a four-region-setting that accounts for the importance of OPEC as a major...

this paper analyzes two effects which might have an important impact on a reduction of global external imbalances. These are valuation effects on the one hand and interest rate effects on the other hand. We use a four-region model that is based on the models by Obstfeld and Rogoff (2005) and...

This paper studies net foreign assets and the differential returns between gross foreign assets and liabilities for a sample of 49 countries between 1981 and 2007. It shows that investment income is more important than capital gains in imparting a drift to net foreign assets over the long-run,...

This paper investigates the determinants of the trade balance using panel data for 32 industrialized and emerging economies for the period 1990?2007. The results based on fixed effects models and linear mixed models allowing for random slope coefficients, show that the trade balance as a...

This study analyzes the dynamics between real effective exchange rates and current account patterns from a novel perspective. We start by dissecting long-run and time-varying short-run dynamics between both variables. Following this, we extend our framework by including interest rates into our...