This paper examines two competing approaches for calculating current account benchmarks, i.e. the external sustainability approach á la Lane and Milesi-Ferretti (LM) versus the structural current accounts literature (SCA) based on panel econometric techniques. The aim is to gauge the medium...

This paper examines two competing approaches for calculating current account benchmarks, i.e. the external sustainability approach á la Lane and Milesi-Ferretti (LM) versus the structural current accounts literature (SCA) based on panel econometric techniques. The aim is to gauge the medium...

We propose a multi-country dynamic general equilibrium model to quantify the implications of trade and FDI liberalizations for the surge of global trade and current account (CA) imbalances. We calibrate our model to replicate the evolution of bilateral trade and FDI flows across 5 major...

On average, foreign corporations save a third of their local profits in the host country. While this is recorded as "Retained Earnings Foreign Direct Investment" (REFDI), macroeconomics has so far overlooked its particularities. This paper explores the aggregate economic properties of REFDI. It...

Many developing countries have adopted investor-friendly policies in recent years in order to attract export-oriented foreign direct investment (FDI). The effects of these policies on the external accounts have been largely ignored. This paper endogenizes FDI inflows in a structuralist general...

While capital flows to emerging markets bring numerous benefits, they are also known to create macroeconomic imbalances (economic overheating, currency overvaluation) and increase financial vulnerabilities (domestic credit growth, bank leverage, foreign currency-denominated lending). But are all...

This study examines the impact of capital controls using monthly information to construct higher-frequency, quarterly indexes for Malaysia during the period 2000–2008 and Thailand over the period 2000–2010 in a vector auto-regression model. The results show that restrictions in Thailand have...

This BIS Paper (No. 68) is a collection of essays focusing on the drivers and effects of capital flows and the challenges they pose for the implementation of monetary and other policies. The collection draws on selected presentations made at the BIS-sponsored sessions at the Latin American and...

I present new evidence that gross foreign assets and liabilities in equity investments, measured at market value, are positively correlated over the business cycle in each of the Group of Seven industrialized countries (G7). The close comovement of assets and liabilities, in turn, reflects...

The conventional wisdom is that crises are largely due to swings in short-term capital (mainly bank loans in the case of East Asia). Hence economies that finance their current account deficits mainly via foreign direct investment (FDI) are seen as being less susceptible to a crisis. The spate of...