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

Philip Lane and Gian Maria Milesi-Ferretti ()

No 119, Royal Economic Society Annual Conference 2002 from Royal Economic Society

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 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.

Date: 2002-08-29
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Related works:
Journal Article: External wealth, the trade balance, and the real exchange rate (2002)
Working Paper: External Wealth, the Trade Balance and the Real Exchange Rate (2002)
Working Paper: External Wealth, the Trade Balance, and the Real Exchange Rate (2002)
Working Paper: External Wealth, the Trade Balance, and the Real Exchange Rate (2001)
Working Paper: External Wealth, the Trade Balance, and the Real Exchange Rate (2001)
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