I. Introduction 1

  Related Literature 6

II. International Investment Positions: Data, Current Landscape and Evolution over Time 8

  A. The Data: Definitions, Sources and Sample 8

  B. Net International Investment Positions Today 10

  C. The Evolution of NIIPs over Time 11

  D. Data Caveats: Reliability of International Balance of Payments Statistics 17

III. Decomposing Changes in the NIIP and its Components: Methodology 17

  A. Decomposition of Changes in the NIIP: Trade, Valuations and Income 18

  B. Detailed Decompositions of Valuation Effects and Investment Income Flows: Stocks, Exchange Rates, Relative Returns and Composition Effects 19

IV. A Bird’s Eye View of Global Imbalances: Common Drivers 21

  A. Decomposing Changes in the NIIP: Trade, Valuation Effects and Income Flows 22

  B. Decomposing the Financial Components of the NIIP: Stocks, Exchange Rates, Relative Returns and Composition Effects 23

  C. Decomposing Change in the NIIP and Financial Channels at Different Frequencies 26

V. A Closer Look: Decompositions across Countries and Digging Deeper into the Financial Channels 27

  A. Patterns across Individual Countries 28

  B. A Closer Look at Valuation Effects: Exorbitant Privilege Lost in the US and Maintained in the UK? 34

  C. A Closer Look at Investment Income Flows: Japan vs Brazil 36

VI. Shocks and Scenarios for Reducing Global Imbalances 39

  A. Scenario 1: Large Depreciation of the US Dollar 40

  B. Scenario 2: A Sharp Repricing in Equity Markets 43

  C. Scenario 3: Increases in Global Interest Rates 46

  D. Scenario 4: Reduction in Trade Imbalances 51

  E. Scenario Synopsis: Comparing Magnitudes and Potential Macroeconomic Impacts 52

VII. Summary and Conclusions 58