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

 
Author/Editor: Warnock, Francis E.
 
Publication Date: July 01, 2006
 
Electronic Access: Free Full text (PDF file size is 516KB).
Use the free Adobe Acrobat Reader to view this PDF file

 
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.
 
Series: Working Paper No. 06/170
Subject(s): Capital markets | United States

Author's Keyword(s): U.S. asset holdings | global asset portfolios | disorderly currency adjustments | global current account imbalances
 
English
Publication Date: July 01, 2006
ISBN/ISSN: 0 / 1934-7073 Format: Paper
Stock No: WPIEA2006170 Pages: 28
Price:
US$15.00 (Academic Rate:
US$15.00 )
 
 
Please address any questions about this title to publications@imf.org