International Capital Markets and Wealth Transfers

78 Pages Posted: 27 Apr 2022 Last revised: 24 Jun 2023

See all articles by Magnus Dahlquist

Magnus Dahlquist

Stockholm School of Economics; Swedish House of Finance

Christian Heyerdahl-Larsen

BI Norwegian Business School

Anna Pavlova

London Business School; Centre for Economic Policy Research (CEPR)

Julien Pénasse

University of Luxembourg

Multiple version iconThere are 2 versions of this paper

Date Written: June 23, 2023

Abstract

In times of global stress, stock prices fall, the US dollar (USD) appreciates, and the US suffers losses on its net foreign assets (NFA) position. We argue that this does not create a wealth transfer from the US to the rest of the world. The USD appreciation benefits US domestic assets, and the US wealth share actually increases. We generate these patterns within a model with deep habits in which a richer country is more risk-tolerant. The country's NFA position falls in times of stress, yet its wealth share rises. The model matches asset pricing moments and currency risk premia.

Keywords: Currency risk premium, habit formation, net foreign assets, wealth transfers

JEL Classification: E43, F31, G12, G15

Suggested Citation

Dahlquist, Magnus and Heyerdahl-Larsen, Christian and Pavlova, Anna and Pénasse, Julien, International Capital Markets and Wealth Transfers (June 23, 2023). Swedish House of Finance Research Paper No. 22-15, Available at SSRN: https://ssrn.com/abstract=4057287 or http://dx.doi.org/10.2139/ssrn.4057287

Magnus Dahlquist (Contact Author)

Stockholm School of Economics ( email )

Drottninggatan 98
Stockholm, SE-111 60
Sweden

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Christian Heyerdahl-Larsen

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Anna Pavlova

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
+44 20 7000 8218 (Phone)

HOME PAGE: http://https://www.anna-pavlova.co.uk/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Julien Pénasse

University of Luxembourg ( email )

4 Rue Albert Borschette
Luxembourg, L-1246
Luxembourg

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