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External Wealth, the Trade Balance and the Real Exchange Rate

Philip Lane and Gian Maria Milesi-Ferretti ()

No 3153, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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 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 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.

Keywords: net foreign assets; real exchange rate; trade balance (search for similar items in EconPapers)
JEL-codes: F21 F31 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn
Date: 2002-01
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Related works:
Working Paper: External Wealth, the Trade Balance, and the Real Exchange Rate (2003) Downloads
Journal Article: External wealth, the trade balance, and the real exchange rate (2002) Downloads
Working Paper: External Wealth, the Trade Balance, and the Real Exchange Rate (2002) Downloads
Working Paper: External Wealth, the Trade Balance, and the Real Exchange Rate (2002) Downloads
Working Paper: External Wealth, the Trade Balance, and the Real Exchange Rate (2001) Downloads
Working Paper: External Wealth, the Trade Balance, and the Real Exchange Rate (2001) Downloads
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