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Chapter 1: Global Imbalances
🎽 Problem set 1
Summary
Intro
Balance of Payments
The current account
The Financial account
The trade balance and the current account
USA
UK
Other countries
Imbalances in US trade with China
The current account and net international investment position
The USA 🦅
Stocks and Flows
Valuation changes and the Net international investment position (NIIP)
USA!!!
NIIP w out valuation changes??
Gross Position and Valuation changes
The Negative NIIP, Positive NII Paradox
the flip side of the paradox
Summary
Chapter 1: Global Imbalances 1
, Worldwide, the distribution of external debts and credits is not even.
Some countries, like the United States, are large net external debtors
some, like Germany, Japan, and China, are large net external creditors.
This pattern is known as global imbalances.
The balance of payments keeps record of a country’s international transactions.
The balance of payments has two accounts:
the current account → records goods, services, income, transfers
transaction
=
trade balance (usually largest) + income balance + net unilateral transfers
the financial account→ records asset transactions
NIIP (net international investment position) = the difference between a country’s
international asset position and its international liability position.
Current account deficits deteriorate a country’s NIIP
Chapter 1: Global Imbalances 2
, valuation changes of assets change NIIP → affect international asset and
liability positions.
The NIIP-NII paradox refers to the phenomenon that the United States has a
negative net international investment position, NIIP< 0, and positive net
investment income, NII> 0.
Two stories that aim to explain the NIIP-NII paradox are the dark matter
hypothesis and the rate-of-return differential hypothesis.
The NIIP-NII paradox in the United States must have a flipped paradox in
the rest of the world → China has had a positive NIIP and negative NII since
the 2000s, so it displays the flipped NIIP-NII paradox.
In the United States, the trade balance and the current account move closely
together over time.
The United States has been running large current account deficits since the
early 1980s.
Due to its large current account deficits, the United States turned from being
a net external creditor in the early 1980s to being the world’s largest net
external debtor since the late 1990s.
In the United States, valuation changes became large in the early 2000s,
reaching values as high as plus or minus 15 percent of GDP in a single year.
Valuation changes were mostly positive between 2001 and 2010 and mostly
negative between 2011 and 2020. On net, between 1976 and 2020, positive
and negative valuation changes have roughly offset each other.
Intro
Countries trade a lot with one another, which elicits a number of questions (eg
for USA):
How big are international transactions in goods, services, and financial
assets for the United States and other countries?
→ quantity of balance of payments
Chapter 1: Global Imbalances 3
Chapter 1: Global Imbalances
🎽 Problem set 1
Summary
Intro
Balance of Payments
The current account
The Financial account
The trade balance and the current account
USA
UK
Other countries
Imbalances in US trade with China
The current account and net international investment position
The USA 🦅
Stocks and Flows
Valuation changes and the Net international investment position (NIIP)
USA!!!
NIIP w out valuation changes??
Gross Position and Valuation changes
The Negative NIIP, Positive NII Paradox
the flip side of the paradox
Summary
Chapter 1: Global Imbalances 1
, Worldwide, the distribution of external debts and credits is not even.
Some countries, like the United States, are large net external debtors
some, like Germany, Japan, and China, are large net external creditors.
This pattern is known as global imbalances.
The balance of payments keeps record of a country’s international transactions.
The balance of payments has two accounts:
the current account → records goods, services, income, transfers
transaction
=
trade balance (usually largest) + income balance + net unilateral transfers
the financial account→ records asset transactions
NIIP (net international investment position) = the difference between a country’s
international asset position and its international liability position.
Current account deficits deteriorate a country’s NIIP
Chapter 1: Global Imbalances 2
, valuation changes of assets change NIIP → affect international asset and
liability positions.
The NIIP-NII paradox refers to the phenomenon that the United States has a
negative net international investment position, NIIP< 0, and positive net
investment income, NII> 0.
Two stories that aim to explain the NIIP-NII paradox are the dark matter
hypothesis and the rate-of-return differential hypothesis.
The NIIP-NII paradox in the United States must have a flipped paradox in
the rest of the world → China has had a positive NIIP and negative NII since
the 2000s, so it displays the flipped NIIP-NII paradox.
In the United States, the trade balance and the current account move closely
together over time.
The United States has been running large current account deficits since the
early 1980s.
Due to its large current account deficits, the United States turned from being
a net external creditor in the early 1980s to being the world’s largest net
external debtor since the late 1990s.
In the United States, valuation changes became large in the early 2000s,
reaching values as high as plus or minus 15 percent of GDP in a single year.
Valuation changes were mostly positive between 2001 and 2010 and mostly
negative between 2011 and 2020. On net, between 1976 and 2020, positive
and negative valuation changes have roughly offset each other.
Intro
Countries trade a lot with one another, which elicits a number of questions (eg
for USA):
How big are international transactions in goods, services, and financial
assets for the United States and other countries?
→ quantity of balance of payments
Chapter 1: Global Imbalances 3
