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

Author/Editor: Warnock, Francis E.
Authorized for Distribution: July 1, 2006
Electronic Access: Free Full Text (PDF file size is 528KB)
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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: 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.
 
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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  
    Published:   July 1, 2006        
    ISBN/ISSN:   0 / 1934-7073   Format:   Paper
    Stock No:   WPIEA2006170   Pages:   28
    Price:   US$15.00 (Academic Rate: US$15.00 )
       
     
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