IMF Working Papers

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

By Philip R. Lane, Gian M Milesi-Ferretti

March 1, 2002

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Philip R. Lane, and Gian M Milesi-Ferretti. External Wealth, the Trade Balance, and the Real Exchange Rate, (USA: International Monetary Fund, 2002) accessed September 20, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Foreign assets, Foreign currency exposure, Real exchange rates, Terms of trade, Trade balance

Keywords: Asset position, Debtor country, Output growth rate, Trade balance coefficient, WP

Publication Details

  • Pages:

    35

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2002/051

  • Stock No:

    WPIEA0512002

  • ISBN:

    9781451847123

  • ISSN:

    1018-5941