External Sustainability : A Stock Equilibrium Perspective
The authors consider external sustainability from the perspective of equilibrium in net foreign asset positions. Under their approach, an external situation is sustainable if it is consistent with international and domestic investors' achievin...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2000/01/438956/external-sustainability-stock-equilibrium-perspective http://hdl.handle.net/10986/19857 |
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okr-10986-198572021-04-23T14:03:47Z External Sustainability : A Stock Equilibrium Perspective Calderon, Cesar Loayza, Norman Serven, Luis ASSETS BALANCE OF PAYMENTS BUDGET CONSTRAINT CAPITAL ACCOUNT CAPITAL CONTROLS CAPITAL FLOWS CENTRAL BANK CENTRAL BANKS COST OF CAPITAL COUNTRY SAMPLE CURRENT ACCOUNT CURRENT ACCOUNT DEFICIT DEBT DEFICITS DEFLATORS DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPING ECONOMIES DIRECT INVESTMENT DISCOUNTED VALUE DISEQUILIBRIUM EMPIRICAL ANALYSIS EQUILIBRIUM EXCHANGE RATE EXCHANGE RATE ARRANGEMENTS EXCHANGE RATES EXPECTED RETURNS EXPORTS EXTERNAL DEBT FACE VALUE FACTOR MARKETS FINANCIAL DEVELOPMENT FINANCIAL MARKETS FOREIGN ASSETS FOREIGN EXCHANGE FOREIGN INVESTMENT FOREIGN INVESTORS GDP GROWTH RATE IMPORTS INCOME INCOME COUNTRIES INDUSTRIAL COUNTRIES INDUSTRIAL ECONOMIES INFLATION INFLATION RATE INTEREST RATES INTERNATIONAL RESERVES INVESTMENT OPPORTUNITIES LABOR INPUTS LIQUID LIABILITIES MACROECONOMIC INSTABILITY MARGINAL COSTS MARKET PRICES MARKET VALUE NET DEBT OIL PER CAPITA INCOME POLICY RESEARCH PORTFOLIO PORTFOLIO ASSETS POVERTY REDUCTION PRIVATE AGENTS PRODUCTIVITY PRODUCTIVITY GROWTH PROFITABILITY PROPERTY RIGHTS REAL INTEREST REAL INTEREST RATE REPLACEMENT COSTS STANDARD DEVIATION TERMS OF TRADE TRADE SHOCKS TRANSACTION COSTS VALUATION WEALTH The authors consider external sustainability from the perspective of equilibrium in net foreign asset positions. Under their approach, an external situation is sustainable if it is consistent with international and domestic investors' achieving their desired portfolio allocation across countries. They develop a reduced-form model of net foreign asset positions whose long-run equilibrium condition expresses the ratio of net foreign assets to the total wealth of domestic residents as a negative function of investment returns in the country relative to the rest of the world, a positive function of investment risk, and an inverse function of the ratio of foreign-owned to domestically owned wealth. To estimate this equilibrium condition, the authors use a newly constructed data set of foreign asset and liability stocks for a large group of industrial and developing countries, from the 1960s to the present. They also develop summary measures of country returns and risks. Their econometric methodology is an application of the Pooled Mean Group estimator recently developed by Pesaran, Shin, and Smith (1999), which allows for unrestricted cross-country heterogeneity in short-term dynamics while imposing a common long-run specification. The estimation results lend considerable support to the model, especially when applied to countries with low capital controls or high or upper-middle income. The results for countries with high capital controls and, especially, lower-income countries are less supportive of the stock equilibrium model. As a by-product of the model's estimation, the authors obtain estimates of the long-run equilibrium ratios of net foreign assets to wealth, conditional on the observed values of the country's relative returns, risks, and wealth. Then, for a selected group of industrial and developing countries, they evaluate the extent to which actual ratios diverge from their long-run counterparts - and hence the sustainability of current net foreign asset positions. 2014-08-28T20:03:45Z 2014-08-28T20:03:45Z 2000-01 http://documents.worldbank.org/curated/en/2000/01/438956/external-sustainability-stock-equilibrium-perspective http://hdl.handle.net/10986/19857 English en_US Policy Research Working Paper;No. 2281 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
ASSETS BALANCE OF PAYMENTS BUDGET CONSTRAINT CAPITAL ACCOUNT CAPITAL CONTROLS CAPITAL FLOWS CENTRAL BANK CENTRAL BANKS COST OF CAPITAL COUNTRY SAMPLE CURRENT ACCOUNT CURRENT ACCOUNT DEFICIT DEBT DEFICITS DEFLATORS DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPING ECONOMIES DIRECT INVESTMENT DISCOUNTED VALUE DISEQUILIBRIUM EMPIRICAL ANALYSIS EQUILIBRIUM EXCHANGE RATE EXCHANGE RATE ARRANGEMENTS EXCHANGE RATES EXPECTED RETURNS EXPORTS EXTERNAL DEBT FACE VALUE FACTOR MARKETS FINANCIAL DEVELOPMENT FINANCIAL MARKETS FOREIGN ASSETS FOREIGN EXCHANGE FOREIGN INVESTMENT FOREIGN INVESTORS GDP GROWTH RATE IMPORTS INCOME INCOME COUNTRIES INDUSTRIAL COUNTRIES INDUSTRIAL ECONOMIES INFLATION INFLATION RATE INTEREST RATES INTERNATIONAL RESERVES INVESTMENT OPPORTUNITIES LABOR INPUTS LIQUID LIABILITIES MACROECONOMIC INSTABILITY MARGINAL COSTS MARKET PRICES MARKET VALUE NET DEBT OIL PER CAPITA INCOME POLICY RESEARCH PORTFOLIO PORTFOLIO ASSETS POVERTY REDUCTION PRIVATE AGENTS PRODUCTIVITY PRODUCTIVITY GROWTH PROFITABILITY PROPERTY RIGHTS REAL INTEREST REAL INTEREST RATE REPLACEMENT COSTS STANDARD DEVIATION TERMS OF TRADE TRADE SHOCKS TRANSACTION COSTS VALUATION WEALTH |
| spellingShingle |
ASSETS BALANCE OF PAYMENTS BUDGET CONSTRAINT CAPITAL ACCOUNT CAPITAL CONTROLS CAPITAL FLOWS CENTRAL BANK CENTRAL BANKS COST OF CAPITAL COUNTRY SAMPLE CURRENT ACCOUNT CURRENT ACCOUNT DEFICIT DEBT DEFICITS DEFLATORS DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPING ECONOMIES DIRECT INVESTMENT DISCOUNTED VALUE DISEQUILIBRIUM EMPIRICAL ANALYSIS EQUILIBRIUM EXCHANGE RATE EXCHANGE RATE ARRANGEMENTS EXCHANGE RATES EXPECTED RETURNS EXPORTS EXTERNAL DEBT FACE VALUE FACTOR MARKETS FINANCIAL DEVELOPMENT FINANCIAL MARKETS FOREIGN ASSETS FOREIGN EXCHANGE FOREIGN INVESTMENT FOREIGN INVESTORS GDP GROWTH RATE IMPORTS INCOME INCOME COUNTRIES INDUSTRIAL COUNTRIES INDUSTRIAL ECONOMIES INFLATION INFLATION RATE INTEREST RATES INTERNATIONAL RESERVES INVESTMENT OPPORTUNITIES LABOR INPUTS LIQUID LIABILITIES MACROECONOMIC INSTABILITY MARGINAL COSTS MARKET PRICES MARKET VALUE NET DEBT OIL PER CAPITA INCOME POLICY RESEARCH PORTFOLIO PORTFOLIO ASSETS POVERTY REDUCTION PRIVATE AGENTS PRODUCTIVITY PRODUCTIVITY GROWTH PROFITABILITY PROPERTY RIGHTS REAL INTEREST REAL INTEREST RATE REPLACEMENT COSTS STANDARD DEVIATION TERMS OF TRADE TRADE SHOCKS TRANSACTION COSTS VALUATION WEALTH Calderon, Cesar Loayza, Norman Serven, Luis External Sustainability : A Stock Equilibrium Perspective |
| relation |
Policy Research Working Paper;No. 2281 |
| description |
The authors consider external
sustainability from the perspective of equilibrium in net
foreign asset positions. Under their approach, an external
situation is sustainable if it is consistent with
international and domestic investors' achieving their
desired portfolio allocation across countries. They develop
a reduced-form model of net foreign asset positions whose
long-run equilibrium condition expresses the ratio of net
foreign assets to the total wealth of domestic residents as
a negative function of investment returns in the country
relative to the rest of the world, a positive function of
investment risk, and an inverse function of the ratio of
foreign-owned to domestically owned wealth. To estimate this
equilibrium condition, the authors use a newly constructed
data set of foreign asset and liability stocks for a large
group of industrial and developing countries, from the 1960s
to the present. They also develop summary measures of
country returns and risks. Their econometric methodology is
an application of the Pooled Mean Group estimator recently
developed by Pesaran, Shin, and Smith (1999), which allows
for unrestricted cross-country heterogeneity in short-term
dynamics while imposing a common long-run specification. The
estimation results lend considerable support to the model,
especially when applied to countries with low capital
controls or high or upper-middle income. The results for
countries with high capital controls and, especially,
lower-income countries are less supportive of the stock
equilibrium model. As a by-product of the model's
estimation, the authors obtain estimates of the long-run
equilibrium ratios of net foreign assets to wealth,
conditional on the observed values of the country's
relative returns, risks, and wealth. Then, for a selected
group of industrial and developing countries, they evaluate
the extent to which actual ratios diverge from their
long-run counterparts - and hence the sustainability of
current net foreign asset positions. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Calderon, Cesar Loayza, Norman Serven, Luis |
| author_facet |
Calderon, Cesar Loayza, Norman Serven, Luis |
| author_sort |
Calderon, Cesar |
| title |
External Sustainability : A Stock Equilibrium Perspective |
| title_short |
External Sustainability : A Stock Equilibrium Perspective |
| title_full |
External Sustainability : A Stock Equilibrium Perspective |
| title_fullStr |
External Sustainability : A Stock Equilibrium Perspective |
| title_full_unstemmed |
External Sustainability : A Stock Equilibrium Perspective |
| title_sort |
external sustainability : a stock equilibrium perspective |
| publisher |
World Bank, Washington, DC |
| publishDate |
2014 |
| url |
http://documents.worldbank.org/curated/en/2000/01/438956/external-sustainability-stock-equilibrium-perspective http://hdl.handle.net/10986/19857 |
| _version_ |
1764441691256782848 |