The Transfer Problem Revisited : Net Foreign Assets and Real Exchange Rates

Author/Editor:

Gian M Milesi-Ferretti ; Philip R. Lane

Publication Date:

July 1, 2000

Electronic Access:

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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:

The relationship between international payments and the real exchange rate—the “transfer problem”—is a classic question in international economics. We use new data on countries’ net external positions together with real exchange rate data to shed light on this question. We present a model yielding testable implications on the long-run co-movements of real exchange rates, external positions, relative GDP and terms of trade, and cross-country and time-series evidence on the subject. Countries with net external liabilities are found to have more depreciated real exchange rates, with the main channel of transmission working through the relative price of nontraded goods.

Series:

Working Paper No. 00/123

Subject:

English

Publication Date:

July 1, 2000

ISBN/ISSN:

9781451854602/1018-5941

Stock No:

WPIEA1232000

Format:

Paper

Pages:

38

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