Accumulation Of Foreign Assets Research Articles

The Transfer Problem in the Euro Area: A Cointegration Analysis

This paper empirically investigates the Transfer problem for the vis a vis the Rest of the world. The empirical analysis is developed in a theoretically and statistically consistent way and is intended as a contribution to the literature on the macroeconomics of EMU. The paper reaches three conclusions. First, Net foreign asset accumulation in the Euro area is consistent with real exchange appreciation (Transfer effect). Second, the Transfer effect works essentially through the relative price of nontradables rather than through the terms of trade. Third, the transition from EMS to EMU has certainly had a statistically significant impact in terms of the Transfer effect. On the basis of currently available information, however, this appears to be of a transitory rather than permanent nature.

Asset Policies During an Oil Windfall: Some Simple Analytics

Many developing countries are currently experiencing oil windfalls, whether due to discoveries or to price effects. Such windfalls pose a series of policy dilemmas. The literature has focused on one of these: the choice between using windfall savings for public capital formation and investment in foreign assets. There are good theoretical reasons for investing a substantial part of the windfall initially abroad: the return to investment would fall below the world interest rate if the windfall were to be used entirely for domestic investment. Investing abroad offers an escape from diminishing returns: foreign assets can be repatriated gradually and used for domestic investment. However, in practice the efficient balance between domestic and foreign assets is politically difficult to sustain. Also, even if politically feasible this strategy is inefficient due to the failure to expand the private capital stock (‘equipment’). The policy problem is that the government cannot undertake such investment itself and trying to induce private agents to undertake equipment investment by transferring part of the windfall to them is likely to fail as a result of information problems. We argue that domestic debt repayment solves this dilemma. It has the added advantage of making foreign asset accumulation difficult to reverse.

Asset Price And Current Account Dynamics

We examine the interaction between asset market and current account in a small open economy. In an overlapping generations economy in which land and money are available assets, the interaction between the land price and current account dynamics is shown to generate a plausible (asset price) specie-flow mechanism. We apply them to a number of issues. Domestic credit policy is neutral in the long run: one unit of foreign reserve increase offsets one unit of credit reduction. Next, the association between the endowment of land and foreign asset accumulation depends on parameters of the model. Finally, we examine the dynamic adjustment s following a once-and-for-all capital inflow. When the adjustment involves running current account deficit, the recipient country's foreign reserve position is permanently lowered. Furthermore, the steady state level of national wealth is permanently reduced. [E4, F3]

Productivity and Preferences in a Small Open Economy

Following Hall (Journal of Labor Economics, Vol. 15 (1997), pp. S223–S250) it is increasingly common to incorporate preference, as well as productivity, perturbations in calibrated general equilibrium models. We assess the performance of a small open economy stochastic growth model (based on the Blanchard–Yaari framework) under alternative driving processes. Whilst both models provide familiar descriptions of the aggregate economy, we find that the model driven by productivity disturbances has clear advantages in explaining the behaviour towards foreign asset accumulation.

Inflation and monetary policy in selected West and Central African countries

This paper studies the conduct and performance of monetary policy in five West and Central African countries: Cameroon, Côte d'Ivoire, Gabon, Ghana and Nigeria. The first three are members of the CFA Zone and maintain a fixed peg vis-à-vis the French franc. The other two have recently opted for a more flexible exchange rate regime. No general conclusion can be drawn on the monetary policy-exchange rate policy nexus. Estimates of the offset coefficient are significantly different from (negative) one but VAR estimation results on the ability of the monetary authority to pursue an independent inflation target are mixed. The monetary authorities of Ghana and Nigeria sterilize the accumulation of net foreign assets to a limited degree; no such evidence exists for CFA Zone members.

Dynamic analysis in the Viner model of mercantilism

This paper models the central theme of mercantilism in Jacob Viner's interpretation—power vs plenty—in a framework of modern theory of international finance. It is shown that, in the Viner model of mercantilism, a nation with strong mercantilist sentiment ends up with large foreign asset accumulation and high consumption in the long run; an import tariff leads to more foreign asset holding and more total consumption; furthermore, in the Viner model, the Harberger-Laursen-Metzler effect exists unambiguously: a permanent terms-of-trade deterioration causes a current account deficit in the short run.

Handling “Hot Money”: US Policy toward Latin American Capital Flight in Historical Perspective

It is widely recognized that capital flight was a major contributor to the Latin American debt crisis of the 1980s. According to one estimate, the accumulation of foreign assets by Latin American citizens was equal to as much as 50 percent of the total external debt acquired by the ten largest Latin American debtors between 1975 and 1985. For some countries, such as Argentina, Mexico, and Venezuela, the value of the foreign assets of their citizens was almost equal to or even greater than the value of their external debt in the 1980s.1 These statistics suggest that if the foreign assets of Latin American citizens could have been returned home, the debt crisis would have been greatly eased. How could Latin American flight capital have been repatriated? Throughout the 1980s, orthodox thinkers argued that it was necessary to address the economic problems in the debtor countries that were said to have caused the exodus of hot money, that is, overvalued exchange rates and inflationary domestic economic policies. This view, however, ignored the extent to which capital flight was also related to factors more difficult to correct by economic reforms, such as political instability, tax evasion, and money laundering from illegal earnings. Moreover, critics have argued that the deflationary policies advocated by orthodox thinkers in the 1980s often depressed production, which may have encouraged a further flight of money escaping low returns on capital.2 A final and more profound criticism

Private foreign asset accumulation, not just capital flight: Evidence from the Philippines

External debt problems have been accompanied in many developing countries with large private capital outflows. The latter phenomenon is usually identified in the literature as ‘capital flight’. This article argues that private foreign asset accumulation is a more appropriate term and compares a great variety of definitions and measurement methods and applies these to Philippine data for 1971–88. Outcomes show striking differences in assessment of the magnitude of the phenomenon. In the preferred definition of this study applied to the Philippines, unrecorded workers remittances from abroad, a factor omitted in other studies, represent a major source of foreign exchange earnings which indirectly support private foreign asset accumulation. Other definitions appear to severely underestimate private capital outflows. Econometric evidence on the causes of private foreign asset acquisition shows a strong sensitivity to the applied definition. Regression analysis for six alternative definitions shows that the ex...

An Exchange Rate Determination by Portfolio Approach in Korea: Empirical Results

In the late 1960s, the standard model of the foreign exchange market had supply and demand as stable function of exports and imports. However, the period of floating rates that began in the early 1970s has revealed that exchange rates exhibit the volatility of financial market prices. The monetary approach to exchange rate determination had essentially one way causation from money to exchange rates, via purchasing power parity. The exchange rate, in the asset market view, is determined by financial market equilibrium conditions. Initial stock of assets determine temporary equilibrium values for endogenous such as exchange rates. It influences the trade balance and current account. The latter in turn is the rate of accumulation of national claims or liabilities to foreigners, and this feeds back into financial market equilibrium. This study uses a Tobin's financial asset equilibrium framework to test the portfolio balance model of exchange rate determination in Korea. In Branson, Halttunen and Masson (1979), three outside assets were recognized for each country: Ml, cumulated current account, and net government debt. Their exchange rate equation excluded the two government debts. In Dornbush (1980), there was only one asset whose unexpected, movement had impact on exchange rate movement and it was the net stock of foreign assets held by residents. In this study, we limit our specification to the outside assets of the two countries (Korea-U.S.A.) under consideration. A small country like Korea is one whose bonds are not held by non-residents and which has no impact on the foreign inter est rate. This mean that the accumulation of foreign financial assets is done through the

Riserve monetarie e inflazione mondiale.

World reserves have almost tripled since 1968, with world monetary growth accelerating since 1971 and world inflation jumping to double digits in 1974. In light of these developments, the article looks at whether the stock of world reserves has grown so rapidly that it may generate further world inflation, or whether it is deficient and potentially deflationary. The author first reviews the expansion of global reserves in the 1968-73 period of fixed exchange rates and the recent acceleration of inflation. A comparison of the transitional and permanent effects of floating rates on the demand for international reserves, excess reserves, monetary growth and world inflation is then presented and the impact of gold prices on the monetary bases, growth and inflation is taken up. Finally, OPEC’s accumulation of foreign assets and its impact on the monetary bases of individual countries is considered, as well as other influences on world liquidity. JEL: E31, E42, F31