The Transfer Problem Revisited: Net Foreign Assets and Real Exchange Rates
July 1, 2000
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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.
Subject: External position, Foreign assets, Foreign currency exposure, Foreign exchange, International trade, Money, Real exchange rates, Terms of trade
Keywords: CPI to WPI ratio, CPI-RER to the WPI-RER, exchange rate regime choice, Foreign assets, Foreign currency exposure, Global, income group, net foreign asset, net foreign assets, nominal exchange rate, open economy, Real exchange rates, simple regression, terms of trade, traded goods, transfer effect, WP, WPI indices, WPI ratio
Pages:
38
Volume:
2000
DOI:
Issue:
123
Series:
Working Paper No. 2000/123
Stock No:
WPIEA1232000
ISBN:
9781451854602
ISSN:
1018-5941
