International Finance and Macroeconomics.

• Position: Program and Working Group Meeting

The NBER's Program on International Finance and Macroeconomics met in Cambridge on October 27. Research Associates Charles Engel and Linda Tesar, organized the program. The following papers were discussed:

Enrique G. Mendoza, International Monetary Fund and NBER; Vincenzo Quadrini, University of Southern California and NBER; and Victor Rios-Rull, University of Pennsylvania and NBER, "Financial Integration, Financial Deepness and Global Imbalances"

Discussant: Manuel Amador, Stanford University and NBER

Bong-Chan Kho, Seoul National University; Rene M. Stulz, Ohio State University and NBER; and Frank E. Warnock, University of Virginia and NBER, "Financial Globalization, Governance, and the Evolution of the Home Bias" (NBER Working Paper No. 12389)

Discussant: Joshua Coval, Harvard University and NBER

Ricardo J. Caballero and Guido Lorenzoni, MIT and NBER, "Persistent Appreciations, Overshooting, and Optimal Exchange Rate Interventions"

Discussant: Enrique G. Mendoza

Michael W. Klein, Tufts University and NBER; and Jay C. Shambaugh, Dartmouth College, "The Nature of Exchange Rate Regimes"

Discussant: Christian Broda, University of Chicago and NBER

Craig Burnside, Duke University and NBER; Martin Eichenbaum and Sergio Rebelo, Northwestern University and NBER; and Issac Kleshchelski, Northwestern University, "The Returns to Currency Speculation"

Discussant: Eric van Wincoop, University of Virginia and NBER

Marianne Baxter, Boston University and NBER, "International Risk Sharing in the Short Run and the Long Run"

Discussant: Fabrizio Perri, New York University and NBER

Large global financial imbalances need not be the harbinger of a world financial crash as many authors believe. Instead, Mendoza and his coauthors show that large and persistent global imbalances can be the outcome of financial integration when countries have different financial markets characteristics. In particular, countries with more advanced financial markets accumulate foreign liabilities vis-a-vis countries with less developed financial systems in a gradual, long-lasting process. Moreover, differences in financial development affect the composition of foreign portfolios, so that a country with negative net foreign asset positions can receive positive factor payments. Three empirical observations support these arguments: 1) financial deepness varies widely even amongst industrial countries, with the United States ranking at the top; 2) the secular decline in the U.S. net...