Abstract

http://ssrn.com/abstract=1007926
 
 

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Financing of Global Imbalances


W. Christopher Walker


International Monetary Fund (IMF)

Maria Teresa Punzi


Bank of Portugal; Boston College - Department of Economics; University of Nottingham - Malaysia Campus

July 2007

IMF Working Paper No. 07/177

Abstract:     
This paper analyzes the determinants of bond flows, now the dominant source of capital inflows, into the United States, as a means of establishing conditions affecting the financing of the U.S. current account deficit. To test the hypothesis that capital flows have become more responsive to changes in relative interest rates and other conditions across borders, a panel data set, showing bond flows from 12 separate jurisdictions into the United States, is constructed for the period 1994-2006 using adjusted U.S. Treasury International Capital Flow (TIC) data. Panel vector autoregression and instrumental variables approaches are used to estimate the impact of changes in interest rate differentials and other fundamentals on capital flows into the U.S. The paper finds evidence for an impact from interest rate differentials to bond inflows that has increased over time. Under one plausible set of theoretical assumptions, the increased sensitivity can be interpreted as resulting from a reduction in home bias on the part of non-US investors.

Number of Pages in PDF File: 23

Keywords: Working Paper, United States, Bond issues, Capital flows, Interest rate differential

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Date posted: August 23, 2007  

Suggested Citation

Walker, W. Christopher and Punzi, Maria Teresa, Financing of Global Imbalances (July 2007). IMF Working Papers, Vol. , pp. 1-21, 2007. Available at SSRN: http://ssrn.com/abstract=1007926

Contact Information

W. Christopher Walker (Contact Author)
International Monetary Fund (IMF) ( email )
700 19th Street, N.W.
Washington, DC 20431
United States
Maria Teresa Punzi
Bank of Portugal ( email )
Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal
Boston College - Department of Economics
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
University of Nottingham - Malaysia Campus
Jalan Broga
Semenyih
Selangor Darul Ehsan, Selangor 43500
Malaysia
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