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

Philip Lane and Gian Maria Milesi-Ferretti ()

No 02/51, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: Balance of trade; Foreign exchange; foreign assets, net foreign assets, foreign asset, net foreign asset, net foreign asset position, Open Economy Macroeconomics, trade balance, real exchange rate, (search for similar items in EconPapers)
Date: 2002-03-01
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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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