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Long-Term Capital Movements

Author Info

  • Lane, Philip R.
  • Milesi-Ferretti, Gian Maria

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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2873.

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Date of creation: Jul 2001
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Handle: RePEc:cpr:ceprdp:2873
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Keywords: capital flows; net foreign assets; portfolio balance; trade balance;

Other versions of this item:

  • Philip R. Lane & Gian Maria Milesi-Ferretti, 2002. "Long-Term Capital Movements," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 73-136 National Bureau of Economic Research, Inc.
Find related papers by JEL classification:
  • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
  • F20 - International Economics - - International Factor Movements and International Business - - - General
  • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
  • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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