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Long-Term Capital Movements

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  • Philip Lane
  • Gian Maria Milesi-Ferretti

Abstract

International financial integration allows countries to become net creditors or net debtors with respect to the rest of the world. In this paper, we show that a small set of fundamentals-shifts in relative output levels, the stock of public debt and demographic factors-can do much to explain the evolution of net foreign asset positions. In addition, we highlight that "external wealth" plays a critical role in determining the behavior of the trade balance, both through shifts in the desired net foreign asset position and the investment returns generated on the outstanding stock of net foreign assets. Finally, we provide some evidence that a portfolio balance effect exists: real interest rate differentials are inversely related to net foreign asset positions.

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Bibliographic Info

Paper provided by Trinity College Dublin, Department of Economics in its series Trinity Economics Papers with number 200112.

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Date of creation: 2001
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Handle: RePEc:tcd:tcduee:200112

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Postal: Trinity College, Dublin 2
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Fax: 6772503
Web page: http://www.tcd.ie/Economics/
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