The Stabilizing Role of Net Foreign Asset Returns

34 Pages Posted: 22 May 2018

See all articles by Gustavo Adler

Gustavo Adler

International Monetary Fund (IMF) - Research Department

Daniel Garcia-Macia

International Monetary Fund (IMF) - European Department

Date Written: April 2018

Abstract

With the rapid growth of countries' foreign asset and liability positions over the last two decades,financial returns on those positions ('NFA returns') have become material drivers of current accounts and net stock positions. This paper documents the relative importance of NFA return versus trade channels in driving NFA dynamics, for a sample of 52 economies over 1990-2015. While persistent trade imbalances have been a strong force leading to diverging NFA positions, NFA returns have played an important stabilizing role, mitigating NFA divergence. The stabilizing role of NFA returns primarily reflects the response of asset prices, rather than yield differentials or exchange rates. There is also evidence of heterogeneity in the speed of NFA adjustment, with emerging market economies adjusting more rapidly than advanced economies,and reserve-currency countries adjusting more slowly than others. The paper also documents the role of NFA returns as insurance against domestic and global income shocks, with a focus on reserve-currency countries.

Keywords: net foreign assets, international investment position, valuation changes, return differential.

JEL Classification: F36, G12, F32

Suggested Citation

Adler, Gustavo and Garcia-Macia, Daniel, The Stabilizing Role of Net Foreign Asset Returns (April 2018). IMF Working Paper No. 18/79, Available at SSRN: https://ssrn.com/abstract=3182503

Gustavo Adler (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Daniel Garcia-Macia

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
26
Abstract Views
209
PlumX Metrics