Net exports and current account balances among developed countries,
which contributed to the so called “global imbalances”, are
highly persistent. Despite success along many dimensions, international
business cycle models have difficulty replicating these salient,
low-frequency features of international capital flows. In particular,
net exports and current account balances are much more persistent in the
data than in standard models. We document these important empirical
facts about international capital flows. Further, we show that we can
account for them with a parsimonious one-good two-country model with
small, persistent differences in per capita GDP growth, matching those
we observe among developed countries