Working Paper: CEPR ID: DP2123
Authors: Philip R. Lane
Abstract: We explore some empirical properties of gross internationalinvestment positions. In order to provide income-smoothing, netinvestment income should negatively covary with GDP. Moreover, tomaximize stabilization of GNP in the face of GDP fluctuations, theyield on foreign assets should move countercyclically and the yieldon foreign liabilities procyclically. In both time-series and panelsettings, we reject these hypotheses,suggesting that positive grossinternational investment positions are not associated withincome-smoothing at business-cycle frequencies.
Keywords: international investment positions; international investment income flows; asset trade; income smoothing
JEL Codes: F02; F21; F42; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| net international investment income flows (F21) | GNP less volatile than GDP (E20) |
| countercyclical yields on foreign assets and procyclical yields on foreign liabilities (G15) | income smoothing (D15) |
| positive gross international investment positions (F30) | income smoothing at business-cycle frequencies (E32) |
| yields on foreign assets and liabilities (G15) | income smoothing (D15) |