The wealth of nations: global imbalances and adjustments in a financially integrated world

The dissertation pursues the question of how increasing financial integration impacts real economic activity, for instance aggregate consumption and investment or the trade balance of a country. We find that countries which are well integrated in international equity markets, as measured by the amount and geography of foreign equity holdings, are better able to maintain consumption relatively stable while GDP varies. We also find that for some countries (US and UK) price movements in equity and housing markets are more important than the exchange rate in explaining trade balance movements. Finally we analyze by means of a portfolio-balance model how huge US current account deficits lead to a continued accumulation of US net foreign debt and concomitant surpluses in Asian and oil-exporting countries. In a similar way we analyze the external imbalances between Northern and Southern Europe.