Benchmarks for net international investment positions

Abstract

Applied analysis aimed at assessing which value of the NIIP is appropriate for a given country is relatively scarce, and the few existing papers on the topic estimate one-size-fits-all NIIP benchmarks (e.g., Catão and Milesi-Ferretti, 2014). This paper estimates country-specific NIIP benchmarks on a sample of 65 advanced and emerging economies according to two different criteria: consistency with economic fundamentals (NIIP norms, obtained as cumulated current account norms) and prudence against the risk of external crises (NIIP prudential thresholds, obtained as the threshold of the NIIP variable interacted with relative income per capita that maximises signal power in predicting external crises). The median for the country-specific NIIP norms is around-17% of GDP, while the median for prudential threshold is about-44%. The two benchmarks are negatively correlated across countries, highlighting a tension between factors underpinning the scope for external borrowing and debt tolerance. Gaps between actual and NIIP benchmarks are highly persistent, but help predicting subsequent medium-term NIIP changes better than the NIIP level, thus confirming the usefulness of country-specific reference values. The adjustment of the NIIP in response to NIIP gaps is asymmetric, with a significant adjustment limited to negative gaps, with the exception of countries with a positive net position in foreign currency.

Movement Of External Financial Assets And Liabilities Of Modern Russia

“…The applied NIIP analysis of 65 developed and developing economies using two criteriaconsistency with economic fundamentals (NIIP standards in the form of cumulative current account norms) and caution regarding the risk of external crises (NIIP prudential thresholds obtained as an income threshold for per capita), revealed the median NIIP norm -17 % of GDP, the median for the prudential threshold -https: //doi.org/ 10.15405/epsbs.2020.12.78 Corresponding Author: Valeriy V. Smirnov Selection and peer-review under (Turrini & Zeugner, 2019). More open countries with large domestic financial markets tend to attract more foreign assets and liabilities (Lane, 2000).…”

Cross-Country Variation in Economic Preferences and the Asset Composition of International Investment Positions

“…Our estimates of external assets and liabilities are taken from the External Wealth of Nations database. Turrini and Zeugner (2019) adopt the concept of net international investment position norms, obtained as cumulated current account norms, to estimate country-specific benchmarks. They consider a very large set of explanatory variables but not economic preferences.…”

“…Current account balances account for the bulk of changes in the net international investment position(Turrini and Zeugner, 2019).12 Our version (September 14, 2021) of the External Wealth of Nations database lacks the observation of 2020 for Cameroon, Haiti, Malawi, Venezuela, and Zimbabwe.13 The one exception is the Child dependency ratio in net FDI position regression with Risk-taking (i.e., specification (3) in Table5) as it is statistically significant at the 10% level (see TableA12in the Appendix). However, this does not undermine our main results, because for these variables our hypotheses consider the relationship between net risky…”

Credit Cycles, Fiscal Policy, and Global Imbalances

“…The IMF's External Sector Report analyzes global external developments and provides multilaterally consistent assessments of economies' external positions(see International Monetary Fund, 2019.2 These factors include demographics, differences in income per capita, institutional quality and others; see for instanceCubeddu et al (2019);Gruber and Kamin (2007);Chinn and Prasad (2003);Coutinho et al (2018);Chinn et al (2014) andTurrini and Zeugner (2019).3 See alsoMian andSufi (2011, 2014); Mian, Rao and Sufi (2013); Jones, Midrigan and Philippon (2020).4©International Monetary Fund. Not for Redistribution…”