Net Foreign Assets in the Euro Area: A Cointegration Analysis

26 Pages Posted: 20 Jul 2004

See all articles by Alessandro Girardi

Alessandro Girardi

National Institute of Statistics (ISTAT)

Paolo Paesani

University of Rome - Tor Vergata - Department of Economics and Institutions

Abstract

This paper discusses the macroeconomics of NFA at the Euro Area level. A stylized theoretical model of an open economy, with portfolio choices, and the cointegrated VAR methodology applied to a system including: the real effective exchange rate, domestic and world real GDP per-capita, domestic and foreign real long-term interest rate, domestic real short-term interest rate and the NFA/GDP ratio appear as an adequate choice. The main conclusion of the paper is that, at least in terms of international investment position, the launching of EMU should not have produced radical changes with respect to the past and with respect to what economic theory leads us to expect. Real growth and exchange rate appreciation are both consistent with NFA accumulation. Portfolio adjustment considerations are also important.

Keywords: Cointegrated VAR, Euro area, net foreign assets

JEL Classification: C32, C51, F21

Suggested Citation

Girardi, Alessandro and Paesani, Paolo, Net Foreign Assets in the Euro Area: A Cointegration Analysis. Available at SSRN: https://ssrn.com/abstract=566601 or http://dx.doi.org/10.2139/ssrn.566601

Alessandro Girardi (Contact Author)

National Institute of Statistics (ISTAT) ( email )

Via Cesare Balbo 16
00184 Rome, 0185
Italy

Paolo Paesani

University of Rome - Tor Vergata - Department of Economics and Institutions ( email )

Via Columbia n. 2
00133 Rome
Italy

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