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

 

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/qb070204.pdf

 

Global imbalances and external adjustment after the crisis

Philip R. Lane

Gian Maria Milesi-Ferretti

This draft: May 15, 2014

 

https://www.ifw-kiel.de/konfer/staff-seminar/paper/2014/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

2006

 

https://www.imf.org/external/pubs/ft/wp/2006/wp0669.pdf

 

Europe and Global Imbalances

Philip R. Lane and Gian Maria Milesi-Ferretti

 

https://www.imf.org/external/pubs/ft/wp/2007/wp07144.pdf

 

A Global Perspective on External Positions

Philip R. Lane and Gian Maria Milesi-Ferretti

http://www.nber.org/chapters/c0122.pdf

 

Capital Flows to Central and Eastern Europe

Philip R. Lane

Gian Maria Milesi-Ferretti

https://www.tcd.ie/iiis/documents/discussion/pdfs/iiisdp161.pdf

 

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

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

http://www.bis.org/publ/bppdf/bispap82a.pdf

 

Why do Foreigners Invest in the United States?

Kristin J. Forbes

03/15/08

http://web.mit.edu/kjforbes/www/Papers/Why_Do_Foreigners_Invest_in_US-03-15-08.pdf

 

GLOBAL IMBALANCES: A SOURCE OF STRENGTH OR WEAKNESS?

Kristin J. Forbes

https://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2007/5/cj27n2-9.pdf

 

Patterns of International Capital Flows and Their Implications for Economic Development

Eswar Prasad, Raghuram G. Rajan, and Arvind Subramanian

http://google.comwww.rrojasdatabank.info/NEG11Rajan.pdf

 

Financial Globalisation and the Crisis

Philip R. Lane

June 2012

http://www.lse.ac.uk/researchAndExpertise/units/growthCommission/documents/pdf/contributions/lseGC_lane_FinGlob.pdf

 

The financial crisis and its international transmission: some tentative lessons 

Gian Maria Milesi-Ferretti

September 14, 2009

http://bruegel.org/wp-content/uploads/imported/events/1_Milesi_Ferretti.pdf

 

External liabilities and crises

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

2014

http://economix.fr/docs/1041/Catao_Milesi-Ferretti_External%20Liabil_Crises_jie%2014.pdf

 

International Investment Patterns

Philip R. Lane
and
Gian Maria Milesi-Ferretti

 

https://www.imf.org/external/pubs/ft/wp/2004/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

https://www.imf.org/external/pubs/ft/wp/2008/wp0828.pdf

 

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

 

Iain Hardie

Sylvia Maxfield

 

http://watson.brown.edu/files/watson/imce/events/2015/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

https://www.tcd.ie/Economics/TEP/2001_papers/TEPNo4PL21.pdf

 

The role of external balance sheets in the financial crisis

Yaser Al-Saffar, Wolfgang Ridinger and Simon Whitaker

 

http://www.bankofengland.co.uk/financialstability/Documents/fpc/fspapers/fs_paper24.pdf

 

Domestic Credit Growth and International Capital Flows

Philip R. Lane and Peter McQuade

 

https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1566.pdf

 

STOCKS, FLOWS, AND VALUATION EFFECTS OF FOREIGN ASSETS AND LIABILITIES: DO THEY MATTER?

Alfredo Pistelli

Jorge Selaive

Rodrigo O. Valdés

 

https://core.ac.uk/download/pdf/6360170.pdf

 

External Balance Sheets as Countercyclical Crisis Buffers

Joseph Joyce

2015

https://mpra.ub.uni-muenchen.de/66039/1/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

 

http://www.cepr.org/sites/default/files/Milesi-Ferretti_Bilateral%20Financial%20Linkages%20and%20Global%20Imbalances.pdf

 

Financial Globalization and Cross-Country Spillovers

Chris Kubelec  and Filipa Sa

 

http://economics.mit.edu/files/3519

 

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

Chris Kubelec and Filipa Sá

March 2010

http://www.bankofengland.co.uk/research/Documents/workingpapers/2010/wp384.pdf

 

U.S. Net International Investment Position

http://www.bea.gov/newsreleases/international/intinv/intinvnewsrelease.htm

 

The International Balance Sheets of China and India

Philip R. Lane

Preliminary Draft. March 2006.

 

http://siteresources.worldbank.org/INDIAEXTN/Resources/events/359987-1149066764594/Philip_lane.pdf

 

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Author: Mayank Chaturvedi

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