Abstract
Based on the intertemporal theoretical framework of Gourinchas and Rey ( 2005), using Vector Error Correction Model and time-varying Space State Model, the paper estimates the return and factors of China’s net foreign assets. The results show that significant negative valuation effects in the change of net foreign assets and its sub-category, “risk assets”, especially at short and medium horizons. The fluctuation of assets prices arising from international financial crisis and appreciation of RMB contribute to the losses of external wealth, implying much wealth outflow to other economies.
Highlights
The rapid growth in cross-border financial trade has been one of the salient economic developments over the last two decades
The results show that significant negative valuation effects in the change of net foreign assets and its sub-category, “risk assets”, especially at short and medium horizons
[1] Second, it is increasingly well appreciated that capital gains and losses on existing holdings of foreign assets and liabilities can be important in determining the dynamics of the net foreign assets position, so much wealth are transferred across different economies
Summary
The rapid growth in cross-border financial trade has been one of the salient economic developments over the last two decades. [2] More recently, During 20022007, despite average current account deficit of over 5% of GDP, the U.S net international investment position (IIP)--which measures the difference between U.S external assets and liabilities—has remained broadly unchanged.1[3]. [7,8] The similar cases occurred in U.K. and Canada, positive valuation effect accounted for about 20% the change of Canada’s net international position to GDP in 2004, and valuation represented about 50% of U.K.’s GDP in 2000, even exceeding the impact of current account on international position (Gourinchas and Rey, IMF, 2005) Currency depreciation in these countries where external. My methodology builds on the working paper of Gourinchas and Rey(2005)in NBER, aiming to investigate the relation among net external wealth, export and import, and the real exchange rate of China, making use of a new data set on external assets and liabilities constructed by Lane and Milesi-Ferretti (2001) [2].
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
