Unraveling the Cobweb of Global Imbalances: Drivers, Vulnerabilities and Adjustment Scenarios -- by Stefan Avdjiev, Kristin Forbes, Tsvetelina Nenova, Marjorie Santos

This paper analyses the evolution and drivers of the stock of global imbalances in order to assess associated vulnerabilities and potential adjustment scenarios. These imbalances have recently increased sharply, with a deterioration in the US net international investment position (NIIP) mirrored by NIIP improvements in most other major economies. We decompose these NIIP changes into their proximate drivers for a sample of 28 economies and find that financial factors (including valuation changes and investment income flows) are the primary drivers of global imbalances at both short and long horizons, while trade also plays a significant role (especially at long horizons). Valuation gains on international investment positions have supported economic growth in many countries since 2010, while also increasing their vulnerability to financial market adjustments. To assess the implications and potential risks, we simulate the spillovers through this cobweb of global imbalances from: (i) a sharp dollar depreciation, (ii) a repricing of equity markets, (iii) higher interest rates, and (iv) a halving of trade imbalances. These scenarios highlight the large international spillovers that would be associated with any reduction in global imbalances, the heterogeneous impact of various rebalancing mechanisms on individual countries and the limits of popular proposals for reducing these imbalances. The persistence of global imbalances underscores the importance of building resilience to the large spillovers that can occur through this cobweb of international exposures. Acknowledgements and Disclosures The views in this paper are those of the authors and do not necessarily reflect the views of the BIS, its member central banks or other institutions with which they are affiliated. The authors thank Kai Arvai, Torsten Ehlers, Joseph Gagnon, Gaston Gelos, Pierre-Olivier Gourinchas, Branimir Gruic, Ida Hjortsoe, Gian Maria Milesi-Ferretti, Benoit Mojon, Swapan-Kumar Pradhan, Daniel Rees, Hélène Rey, Georg Strasser, Cedric Tille, Goetz von Peter, and Pinar Yesin, as well as participants at a BIS seminar, BoE BEAR Conference, CEBRA Annual Meeting, EEA-ESEM Congress and OECD seminar on capital flows for helpful comments and discussions. All errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. The views in this paper are those of the authors and do not necessarily reflect the views of the BIS, its member central banks or other institutions with which they are affiliated. The authors thank Kai Arvai, Torsten Ehlers, Joseph Gagnon, Gaston Gelos, Pierre-Olivier Gourinchas, Branimir Gruic, Ida Hjortsoe, Gian Maria Milesi-Ferretti, Benoit Mojon, Swapan-Kumar Pradhan, Daniel Rees, Hélène Rey, Georg Strasser, Cedric Tille, Goetz von Peter, and Pinar Yesin, as well as participants at a BIS seminar, BoE BEAR Conference, CEBRA Annual Meeting, EEA-ESEM Congress and OECD seminar on capital flows for helpful comments and discussions. All errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. Citation and Citation Data Copy Citation Stefan Avdjiev, Kristin Forbes, Tsvetelina Nenova, and Marjorie Santos, "Unraveling the Cobweb of Global Imbalances: Drivers, Vulnerabilities and Adjustment Scenarios," NBER Working Paper 35962 (2026), https://doi.org/10.3386/w35962. Copy to Clipboard Download Citation MARC RIS BibTeΧ Download Citation Data In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals—the NBER Reporter, the NBER Digest, the Bulletin on Health, the Bulletin on the Economics of Alzheimer's, and the Bulletin on Entrepreneurship—as well as research spotlights, lectures, and panel videos. Presenters: Melissa Dell & Ashesh Rambachan Presenter: Paul Goldsmith-Pinkham