<heading id="h1" level="1" format="display" implicit="no">Abstract</heading> Since the mid-1990s and prior to the financial crisis external balances of systemically important economies widened significantly. This paper takes a long-run perspective and reviews the main determinants of widening global imbalances. To this aim, we first provide a set of newly...

It has been argued that the global financial crisis 2007–2009 was intrinsically related to two largely unprecedented phenomena in the global economy: (i) exceptionally benign financial market conditions as mirrored in historically low risk premia and buoyant asset price developments as well as...

This paper focuses on the role of real exchange rate volatility as a driver of portfolio home bias, and in particular as an explanation for differences in home bias across financial assets. We present a Markowitz-type portfolio selection model in which real exchange rate volatility induces a...

The influential work of Obstfeld and Rogoff argues that a closing-up of the US current account deficit involves a large exchange rate adjustment. However, the Obstfeld-Rogoff model works exclusively via demand-side channels and abstracts from possible supply-side changes. We extend the framework...

In this paper, we take a systematic look at global imbalances. First, we provide a definition of the phenomenon, and relate global imbalances to widening external positions of systemically important economies that reflect distortions or entail risks for the global economy. Second, we provide an...

This paper analyses the impact of sovereign wealth funds (SWFs) on global financial markets. It presents back-of-the-envelope calculations which simulate the potential impact of a transfer of traditional foreign exchange reserves to SWFs on global capital flows. If SWFs behave as CAPM-type...

Building upon a Behavioural Equilibrium Exchange Rate (BEER) model, estimated at a quarterly frequency since 1999 on a broad sample of 57 countries, this paper assesses whether both the size and the persistence of real effective exchange rate misalignments from the levels implied by economic...