How Might a Disorderly Resolution of Global Imbalances Affect Global Wealth?

July 1, 2006

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Format: Chicago

Francis E. Warnock How Might a Disorderly Resolution of Global Imbalances Affect Global Wealth?, (USA: International Monetary Fund, 2006) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Partly reflecting structural advantages such a liquidity and strong investor protection, foreigners have built up extremely large positions in U.S. (as well as other dollar-denominated) financial assets. This paper describes the impact on global wealth of an unanticipated shock to U.S. financial markets. For every 10 percent decline in the dollar, U.S. equity markets, and U.S. bond markets, total wealth losses to foreigners could amount to about 5 percentage points of foreign GDP. Four stylized facts emerge: (i) foreign countries, particularly emerging markets, are more exposed to U.S. bonds than U.S. equities; (ii) U.S. exposure has increased for most countries; (iii) on average, U.S. asset holdings of developed countries and emerging markets (scaled by GDP) are very similar; and (iv) based on their reserve positions, wealth losses of emerging market governments could, on average, amount to about 2¾ percentage points of their GDP.

Subject: Bonds, Emerging and frontier financial markets, Financial institutions, Financial markets, Securities, Securities markets, Stocks

Keywords: Asia and Pacific, Bond, Bond holding, Bonds, Caribbean, CPIS data, Disorderly currency adjustments, Dollar, Dollar bond, Dollar depreciation, Dollar-denominated bond, Emerging and frontier financial markets, Emerging market, Europe, Global, Global asset portfolios, Global current account imbalances, Middle East, Price, Securities, Securities markets, Stocks, U.S. asset holdings, Wealth loss, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2006/170
Stock No:

WPIEA2006170
ISBN:

9781451864304
ISSN:

1018-5941

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