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Net foreign assets and current account balances

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  • Michael Bleaney
  • Mo Tian

Abstract

Theory predicts a negative long-run equilibrium relationship between net foreign assets and net exports (the trade balance plus net transfers). In a large sample of countries back to 1971, the data are found to be consistent with this provided that the short-run dynamics are allowed to vary across countries. By contrast, the correlation between net foreign assets and net exports in a given year tends to be positive in most years. The correlation between net foreign assets and the current account balance shows a similar pattern: negative in time series but positive in cross-section. Shocks to relative prices and cycles in international lending prevent the world from settling on an equilibrium for any length of time.

Suggested Citation

  • Michael Bleaney & Mo Tian, 2019. "Net foreign assets and current account balances," Discussion Papers 2019/06, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    • Handle: RePEc:not:notcfc:19/06
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    File URL: https://www.nottingham.ac.uk/cfcm/documents/papers/cfcm-2019-06.pdf
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    References listed on IDEAS

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    Keywords

    current account; exchange rates; net foreign assets; net exports;
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