Study reveals global financial imbalances threaten economic stability worldwide.
The relationship between a country's foreign assets and its trade balance fluctuates over time. While theory predicts a negative link in the long run, short-term dynamics vary among countries. In most years, foreign assets and net exports are positively correlated, but over time, they tend to be negatively related. The same pattern is seen between foreign assets and the current account balance. Factors like price changes and international lending cycles prevent a stable equilibrium from being reached globally.