External Balance sheets of Nations

External Balance sheets of Nations

Also read my other related post.

Foundations of Balance Sheet Economics


From The role of external balance sheets in the financial crisis

Gross external balance sheets are important in explaining the incidence of the financial crisis across economies. Just as for banks, leverage of the national balance sheet was an indicator of subsequent vulnerability. Countries that also experienced strong domestic credit growth, in part fuelled by ‘savings glut’ net capital inflows, suffered particularly badly. And banks’ balance sheets were critical in the transmission mechanism: high gross external interbank debt — the ‘banking glut’ — and maturity and currency mismatches, contributed to foreign rollover risk.


From  Bilateral Financial Linkages and Global Imbalances: a View on The Eve of the Financial Crisis

During the last 15 years international financial integration has increased dramatically. This process was characterized in particular by two related trends: an explosion in the size of cross-border capital inflows and outflows, reflected in rapidly expanding stocks of external assets and liabilities; and the emergence of global imbalances, reflected in an increased dispersion in world current account positions and a sharp widening of global net debtor and creditor positions. With cross-border financial linkages becoming much stronger, measuring them accurately is essential to understand the impact and international transmission of shocks, as the global financial crisis has clearly shown. However, while research on causes and consequences of global imbalances and international financial integration has been extensive, and recent pioneering work by Kubelec and Sa (2010) has documented the increase in bilateral financial linkages among 18 advanced economies and emerging markets, we still lack a comprehensive global picture of bilateral net and gross positions across countries. This paper takes a first step towards filling that gap.

From The geographical composition of national external balance sheets: 1980–2005

Financial globalisation has been one of the most striking phenomena happening in the world economy in the past two decades. Until recently, very little was known about the size and composition of countries’ external nancial assets and liabilities. This gap was partly narrowed by the work of Lane and Milesi-Ferretti, which provides estimates of the total external nancial assets and liabilities of 145 countries, from 1970 to 2004. These data show that there has been a marked increase in the ratio of foreign assets and liabilities to GDP, particularly since the mid-1990s. This increase has been especially pronounced among industrial countries, where nancial integration has exceeded trade integration. However, very little is known about the geographical composition of assets and liabilities. This paper contributes to a better understanding of the geographical composition of countries’ external positions by constructing a data set of stocks of bilateral assets and liabilities for a group of 18 countries, covering the period from 1980 to 2005.

The data distinguish between four asset classes: foreign direct investment, portfolio equity, debt, and foreign exchange reserves. For the rst three asset classes, missing data are constructed using gravity models, which have been extensively applied to explain cross-border trade and have been increasingly used to explain nancial stocks and ows. These models explain bilateral assets by the geographical and historical proximity between the source and host countries, including variables such as distance, time difference, whether the source and host countries share a common border, a common language, or have colonial links. These models tend to have a large explanatory power, suggesting that nancial markets are not frictionless, but are segmented by information asymmetries and familiarity effects. For reserves, a two-step procedure is adopted. First, data on the currency composition are collected and then are translated into geographical composition.


Key Sources of Research:

Financial globalisation, external balance sheets and economic adjustment

By Chris Kubelec


Click to access qb070204.pdf


Global imbalances and external adjustment after the crisis

Philip R. Lane

Gian Maria Milesi-Ferretti

This draft: May 15, 2014


Click to access LMF%20EXTADJUST%20July2014.pdf


The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970–2004

Philip R. Lane and Gian Maria Milesi-Ferretti



Click to access wp0669.pdf


Europe and Global Imbalances

Philip R. Lane and Gian Maria Milesi-Ferretti


Click to access wp07144.pdf


A Global Perspective on External Positions

Philip R. Lane and Gian Maria Milesi-Ferretti

Click to access c0122.pdf


Capital Flows to Central and Eastern Europe

Philip R. Lane

Gian Maria Milesi-Ferretti

Click to access iiisdp161.pdf


Cross-border portfolios: assets, liabilities, and non- flow adjustments

Stephanie E Curcuru,2 Charles P Thomas,2 Francis E Warnock

Click to access bispap82a.pdf


Why do Foreigners Invest in the United States?

Kristin J. Forbes


Click to access Why_Do_Foreigners_Invest_in_US-03-15-08.pdf



Kristin J. Forbes

Click to access cj27n2-9.pdf


Patterns of International Capital Flows and Their Implications for Economic Development

Eswar Prasad, Raghuram G. Rajan, and Arvind Subramanian

Click to access NEG11Rajan.pdf


Financial Globalisation and the Crisis

Philip R. Lane

June 2012

Click to access lseGC_lane_FinGlob.pdf


The financial crisis and its international transmission: some tentative lessons 

Gian Maria Milesi-Ferretti

September 14, 2009

Click to access 1_Milesi_Ferretti.pdf


External liabilities and crises

Luis A.V. Catão , Gian Maria Milesi-Ferretti


Click to access Catao_Milesi-Ferretti_External%20Liabil_Crises_jie%2014.pdf


International Investment Patterns

Philip R. Lane
Gian Maria Milesi-Ferretti


Click to access wp04134.pdf


Where Did All the Borrowing Go?
A Forensic Analysis of the U.S. External Position

Prepared by Philip R. Lane and Gian Maria Milesi-Ferretti1

February 2008

Click to access wp0828.pdf


An Elephant in the Room: The US External Balance Sheet and International Monetary Power


Iain Hardie

Sylvia Maxfield


Click to access An%20Elephant%20in%20the%20Room%20Brown%20Oct%202015.pdf


THE EXTERNAL WEALTH OF NATIONS Measures of Foreign Assets and Liabilities For Industrial and Developing Countries

Philip Lane

Gian Maria Milesi-Ferretti

August 14, 2000

Click to access TEPNo4PL21.pdf


The role of external balance sheets in the financial crisis

Yaser Al-Saffar, Wolfgang Ridinger and Simon Whitaker


Click to access fs_paper24.pdf


Domestic Credit Growth and International Capital Flows

Philip R. Lane and Peter McQuade


Click to access ecbwp1566.pdf



Alfredo Pistelli

Jorge Selaive

Rodrigo O. Valdés


Click to access 6360170.pdf


External Balance Sheets as Countercyclical Crisis Buffers

Joseph Joyce


Click to access MPRA_paper_66039.pdf


Bilateral Financial Linkages and Global Imbalances: a View on the Eve of the Financial Crisis

Gian Maria Milesi-Ferretti

Francesco Strobbe

Natalia Tamirisa

This Draft: May 13, 2011


Click to access Milesi-Ferretti_Bilateral%20Financial%20Linkages%20and%20Global%20Imbalances.pdf


Financial Globalization and Cross-Country Spillovers

Chris Kubelec  and Filipa Sa




The geographical composition of national external balance sheets: 1980–2005

Chris Kubelec and Filipa Sá

March 2010

Click to access wp384.pdf


U.S. Net International Investment Position



The International Balance Sheets of China and India

Philip R. Lane

Preliminary Draft. March 2006.


Click to access Philip_lane.pdf


Author: Mayank Chaturvedi

You can contact me using this email mchatur at the rate of AOL.COM. My professional profile is on Linkedin.com.

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