International Capital Flows and Debt Dynamics

Author/Editor: Martin D. D. Evans
Publication Date: July 01, 2012
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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: This paper presents a new model for studying international capital flows and debt dynamics that emphasizes the role played by expectations concerning future trade flows and returns. I use the model to estimate the drivers of the U.S. external position and capital flows between 1973 and 2008. The estimates show that most of the secular rise in U.S. international indebtedness is attributable to growing optimism about future returns on U.S. holdings of foreign equity and FDI assets. They also show that the transformation of world savings into risky assets by the U.S. had little effect on its external position, but the expected future real depreciation of the dollar allowed the U.S. to sustain a higher level of international debt after the 1990s.
Series: Working Paper No. 12/175
Subject(s): Capital flows | Economic models | External debt | Foreign direct investment

Author's Keyword(s): Capital Flows | External Imbalances | International Debt | International Solvency | Exorbitant Privilege
Publication Date: July 01, 2012
ISBN/ISSN: 9781475505238/1018-5941 Format: Paper
Stock No: WPIEA2012175 Pages: 59
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