Why do countries differ in terms of their exposure to fluctuations in the global supply of credit? We argue that frictions in global intermediation lead to an endogenous partitioning of economies into groups with low and high exposure to the global credit cycle. We show that investors with varying degree of information hold dissimilar portfolios, with low skilled investors sharply rebalancing their cross-country asset holdings across different aggregate states. The differential response of investors invites differential strategies of firms, jointly shaping heterogeneous global cycles. We connect the implications of our model to stylized facts on credit spreads, investment, safe asset supply, concentration of debt ownership, and the return on debt during various boom-bust episodes, both in the time series and in the cross-section. We demonstrate that a global savings glut not only exacerbates both booms and busts in high exposure countries, but also increases the exposure of some countries to credit cycles.
