Chapter

A Global Perspective on External Positions

Philip R. Lane and Gian Maria Milesi-Ferretti

in G7 Current Account Imbalances

Published by University of Chicago Press

Published in print May 2007 | ISBN: 9780226107264
Published online February 2013 | e-ISBN: 9780226107288 | DOI: http://dx.doi.org/10.7208/chicago/9780226107288.003.0003
A Global Perspective on External Positions

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This chapter explores the increased dispersion in net external positions in recent years, particularly among industrial countries. Return differentials between external assets and liabilities can potentially exert significant impacts on the dynamics of net foreign assets. There is some evidence that a shift in returns is connected with a subsequent change in the level of capital flows. The analysis of relative rates of return and capital flows reveals that U.S. residents have consistently earned higher returns on their assets than they pay out on their liabilities. It also shows that the real dollar returns on foreign investment in the United States have on average been negative over the past four years and even more so when expressed in the currencies of most foreign investor countries. Since 2000, capital flows to the United States have shifted toward fixed-rate (and low-yield) debt instruments and away from equities.

Keywords: net foreign assets; industrial countries; external assets; liabilities; capital flows; dollar returns; foreign investment; United States

Chapter.  13540 words.  Illustrated.

Subjects: Financial Markets

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