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

IMF Working Paper No. 00/123

HKIMR Working Paper No. 6/2000

39 Pages Posted: 1 Feb 2006

See all articles by Philip R. Lane

Philip R. Lane

Trinity College (Dublin) - Department of Economics; Centre for Economic Policy Research (CEPR); Central Bank of Ireland

Gian Maria Milesi-Ferretti

International Monetary Fund (IMF); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2000

Abstract

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.

Keywords: Real exchange rates, net foreign assets, terms of trade

JEL Classification: F21, F31, F41

Suggested Citation

Lane, Philip R. and Milesi-Ferretti, Gian Maria, The Transfer Problem Revisited: Net Foreign Assets and Real Exchange Rates (July 2000). IMF Working Paper No. 00/123; HKIMR Working Paper No. 6/2000. Available at SSRN: https://ssrn.com/abstract=879879

Philip R. Lane (Contact Author)

Trinity College (Dublin) - Department of Economics ( email )

Trinity College
Dublin 2
Ireland
+353 1 608 2259 (Phone)
+353 1 677 2503 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

Gian Maria Milesi-Ferretti

International Monetary Fund (IMF) ( email )

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United States
202-623-7441 (Phone)
202-589-7441 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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