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

By Philip R. Lane, Gian M Milesi-Ferretti

March 1, 2002

Preview Citation

Format: Chicago

Philip R. Lane, and Gian M Milesi-Ferretti. External Wealth, the Trade Balance, and the Real Exchange Rate, (USA: International Monetary Fund, 2002) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper examines the link between the net foreign asset position, the trade balance and the real exchange rate. In particular, it decomposes the impact of a country's net foreign asset position ("external wealth") on its long-run real exchange rate into two mechanisms: the relation between external wealth and the trade balance; and, holding other determinants fixed, a relation between the trade balance and the real exchange rate. It also provides additional evidence that the relative price of nontradables is an important channel linking the trade balance and the real exchange rate.

Subject: Foreign assets, Foreign currency exposure, Real exchange rates, Terms of trade, Trade balance

Keywords: Asset position, Debtor country, Output growth rate, Trade balance coefficient, WP

Publication Details

Pages:

35
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/051
Stock No:

WPIEA0512002
ISBN:

9781451847123
ISSN:

1018-5941

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