Working Paper: CEPR ID: DP5234
Authors: Philip R. Lane; Gian Maria Milesi-Ferretti
Abstract: The paper highlights the increased dispersion in net external positions in recent years, particularly among industrial countries. It provides a simple accounting framework that disentangles the factors driving the accumulation of external assets and liabilities (such as trade imbalances, investment income flows, and capital gains) for major external creditors and debtors. It also examines the factors driving the foreign asset portfolio of international investors, with a special focus on the weight of US liabilities in the rest of the world's stock of external assets. Finally, it relates the empirical evidence to the current debate about the roles of portfolio balance effects and exchange rate adjustment in shaping the external adjustment process.
Keywords: capital flows; external assets and liabilities; financial integration
JEL Codes: F31; F32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| deterioration of the US current account balance (F32) | improvement in the current account balances of emerging Asia and oil-producing countries (F32) |
| shifts in asset prices and exchange rates (F31) | valuation effects (Q51) |
| capital gains on US foreign assets (F21) | US net foreign asset position (F30) |
| capital gains (H24) | offset trade deficits (F32) |
| trade balances (F10) | net external positions (F32) |