Globalization, Gluts, Innovation or Irrationality: What Explains the Easy Financing of the U.S. Current Account Deficit?

IMF Working Papers, July 1, 2007

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Globalization, Gluts, Innovation or Irrationality: What Explains the Easy Financing of the U.S. Current Account Deficit?

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Bibliographic details

• Authors: Ravi Balakrishnan, Volodymyr Tulin, Tamim Bayoumi
• Published: July 1, 2007
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451867244.001

Research question and approach

• Examines the roles of:
  • U.S. financial innovation,
  • financial globalization, and
  • the savings glut hypothesis

in explaining the rise in U.S. external debt.

• Methodology:
  • Portfolio balance model analysis.
  • Empirical analysis following the model.

Key findings

• Financial deepening and falling home bias in industrialized countries explain a large share of external financing.
• The savings glut hypothesis (including difficult-to-track petrodollar recycling) is important in explaining external financing.
• U.S. financial innovation is also important, partly because it contributed to declining home bias in industrialized countries.
• These factors should be viewed as a constellation of forces that can be self-reinforcing rather than in isolation.

Subjects and keywords

• Subjects: Bonds, Emerging and frontier financial markets, Foreign assets, Securities markets, Sovereign bonds
• Keywords: current account, fixed income, global bond, government bond, WP

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• Format availability: More Formats on IMF eLibrary; Order a Print Copy (as listed on the source)
• Related programmatic links shown on the source: IMF Working Papers; United States and the IMF; Visit the IMF eLibrary; IMF Publications Newsletter

Source: Globalization, Gluts, Innovation or Irrationality: What Explains the Easy Financing of the U.S. Current Account Deficit?, IMF Working Papers 2007/160, accessed via https://www.imf.org/en/publications/wp/issues/2016/12/31/globalization-gluts-innovation-or-irrationality-what-explains-the-easy-financing-of-the-u-s-21118