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Discussion of The External Wealth of Nations Mark II by Philip Lane and Gian Maria Milesi-Ferretti

Discussion of The External Wealth of Nations Mark II by Philip Lane and Gian Maria Milesi-Ferretti. Comments by Manuela Goretti University of Warwick April 29, 2006 University of Wisconsin, Madison. Outline. Dataset and main stylised facts Measurement error and data availability.

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Discussion of The External Wealth of Nations Mark II by Philip Lane and Gian Maria Milesi-Ferretti

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  1. Discussion ofThe External Wealth of Nations Mark IIby Philip Lane and Gian Maria Milesi-Ferretti Comments by Manuela Goretti University of Warwick April 29, 2006 University of Wisconsin, Madison

  2. Outline • Dataset and main stylised facts • Measurement error and data availability

  3. The dataset • Data on foreign assets and liabilities, classified by asset type (debt, portfolio equity, FDI) • Extension of their 2001 IJE paper

  4. Important contribution • “Global” dataset: • Updated: end-date from 1998 up to 2004 • Country coverage: from 67 to 145 countries • Rigorous methodology • Stock estimates: direct and cumulative flow measures • Possible to detect under/over-reporting instances by cross-checking estimates and bilateral data from portfolio survey • Attention to valuation adjustments

  5. Key stylised facts • Greater financial globalization, especially in ICs • Composition of assets and liabilities • Debt liabilities for major debtors (e.g. US, UK) • Equities liabilities (FDI and valuation changes) for EMs • Large external imbalances • Role of the valuation channel in the discrepancy between CA and changes in NFAs

  6. Limits from data availability • Still few observations for several countries • Value of cross-sectional versus time-series analysis • Data availability at a quarterly frequency for IC group?

  7. Direction of flows • Bilateral data on NFA (Coordinated Portfolio Investment Survey: 71 reporting countries) • Measurement error and importance of greater data availability on financial derivatives and transactions via offshore centers

  8. Returns • Access to data on returns by asset class • Insight on portfolio composition as well as returns differentials across asset categories and countries

  9. The valuation channel • Figures for valuation effects • Sign and magnitude • Details on components of changes in the country international investment position (e.g. data released by the Department of Commerce)

  10. The valuation channel (cont’d)

  11. Conclusion • Essential resource for empirical applications and in general for a better understanding of international markets • Scope for further extensions and updates as new data becomes available

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