Essays in International Macroeconomics
Citation:
ALLEN, CIAN, Essays in International Macroeconomics, Trinity College Dublin.School of Social Sciences & Philosophy, 2019Download Item:
Abstract:
This dissertation consists of three essays in international macroeconomics. It lies at the intersection of balance of payments analysis and sectoral financial analysis. In particular, it makes use of newly available financial accounts data by institutional sector to revisit key issues in international macroeconomics.
The first essay (Chapter 2) revisits the period of substantial widening of external imbalances in the run-up to the global financial crisis and their adjustment since then. We take a granular look at these imbalances through the lens of their domestic counterpart: the net financial balance of the household sector, the government, non-financial corporations, and financial corporations. Our findings challenge the often-claimed view that the household sector lies behind most of the dynamics of the current account. In fact, we show that it is the non-financial corporation and the government sectors that account for the bulk of: (i) the co-movement with the standard set of fundamental covariates of the current account; (ii) the external adjustment and expenditure reduction in the aftermath of the global financial crisis; and (iii) the diverging dynamics during large and persistent current account imbalances. These results emphasize that analyzing domestic sectoral balances can lead to a better empirical and theoretical understanding of global imbalances.
In the second essay (Chapter 3), we look at the relation between aggregate household wealth dynamics and the net international investment position (NIIP). Household wealth is closely associated with fluctuations in the economy. However, the linkages between household wealth dynamics and cross-border financial holdings have remained unexamined. Thanks to the recent assembly of an essential dataset (Piketty and Zucman, 2014), this paper assesses these co-movements in selected advanced economies. We establish that increases in net household wealth are associated with deteriorations of the NIIP. This pattern is primarily driven by valuation changes in wealth (mostly through house price appreciation). Overall, we find that capital gains on household wealth are strongly related to the accumulation of net external debt liabilities, a key indicator of financial vulnerability.
In the final essay (Chapter 4), we use corporate financial balance sheets to estimate the share of foreign portfolio ownership of domestic equities. The essay shows that the current national accounting principles can significantly cloud the interpretation of key macroeconomic statistics in highly globalized economies. A key concept in the balance of payments is the difference in the recording of income between foreign direct investors and foreign portfolio investors. Profit is booked for direct investors as it occurs, but only when it is paid-out via dividends for portfolio investors. In the past few decades, a combination of increases in corporate retained earnings, cross-border holdings, and the changing nature of foreign direct investment flows, has amplified the distortions caused by this principle. Using the national accounts and bilateral foreign portfolio holdings, we estimate the scale of retained earnings attributed to foreign portfolio investors. We show this correction leads to a significant redistribution of (recorded) income in highly globalized economies. In turn, we find that key policy variables such as the current account and gross national income can be misleading.
Sponsor
Grant Number
Irish Research Council (IRC)
TCD
Description:
APPROVED
Author: ALLEN, CIAN
Advisor:
Benetrix, AgustinLane, Philip
Publisher:
Trinity College Dublin. School of Social Sciences & Philosophy. Discipline of EconomicsType of material:
ThesisAvailability:
Full text availableKeywords:
sectoral imbalances, external imbalancesMetadata
Show full item recordLicences: