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External Wealth, the Trade Balance, and the Real Exchange Rate

  • Lane, Philip R.

    (Trinity College Dublin and CEPR)

  • Gian Maria Milesi-Ferretti

    (International Monetary Fund and CEPR)

We examine the link between the net foreign asset position, the trade balance and the real exchange rate. In particular, we decompose the impact of a countryís net foreign asset position (ëexternal wealthí) on its long-run real exchange rate into two mechanisms: the relation between external wealth and the trade balance; and, holding fixed other determinants, a negative relation between the trade balance and the real exchange rate. We also provide additional evidence that the relative price of nontradables is an important channel linking the trade balance and the real exchange rate.

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Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 119.

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Date of creation: 29 Aug 2002
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Handle: RePEc:ecj:ac2002:119
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Web page: http://www.res.org.uk/society/annualconf.aspEmail:


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    • 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.
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  30. No authors listed, 2001. "New Economy," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 27(1), pages 1-9.
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