This study examines from 1981-2006 the relationship between the size of net foreign assets and the dynamics of consumption, real exchange rate, and real interest rate in a cross-section of countries. While the estimated macroeconomic adjustments vary across OECD, G7, developing countries, and East Asia, some notable pattern emerges. We find that the short-run adjustment contributes to the global saving glut. In the presence of positive global real economic shocks, the further accumulation of net foreign assets/GDP by a one-standard deviation is associated with a lower level of consumption/GDP by 0.05% per year and a depreciation of real exchange rate by 0.1% per year. Against these short-run dynamics is the observed convergence in the distribution of net foreign assets/GDP across countries, a combination which potentially helps to sustain the global imbalances over the long-run.

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