External Wealth, the Trade Balance, and the Real Exchange Rate
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Summary:
This paper examines the link between the net foreign asset position, the trade balance and the real exchange rate. In particular, it decomposes the impact of a country's net foreign asset position ("external wealth") on its long-run real exchange rate into two mechanisms: the relation between external wealth and the trade balance; and, holding other determinants fixed, a relation between the trade balance and the real exchange rate. It also provides additional evidence that the relative price of nontradables is an important channel linking the trade balance and the real exchange rate.
Series:
Working Paper No. 2002/051
Subject:
Foreign assets Foreign currency exposure Real exchange rates Terms of trade Trade balance
English
Publication Date:
March 1, 2002
ISBN/ISSN:
9781451847123/1018-5941
Stock No:
WPIEA0512002
Pages:
35
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