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Black holes and Revelations - Demography and the Net International Investment Position

Kahn, Cecilia LU (2015) NEKP01 20151
Department of Economics
Abstract
This purpose of this paper is to explain the long and short run development of the Net International Investment Position (NIIP) using age structure data. Following the financial globalization, the development of the NIIP has diverged from the path of accumulated current account flows. A subsequent consequence is that despite sustained current account surpluses, NIIPs of small developed countries remain small or negative. The situations are referred to as so-called “black holes”. The reason for this development seems to be valuation which has gained importance for the determination of the NIIP at the expense of the current account. Valuation consists of (i) asset prices and (ii) real exchange rates. In this paper, demography is argued to be... (More)
This purpose of this paper is to explain the long and short run development of the Net International Investment Position (NIIP) using age structure data. Following the financial globalization, the development of the NIIP has diverged from the path of accumulated current account flows. A subsequent consequence is that despite sustained current account surpluses, NIIPs of small developed countries remain small or negative. The situations are referred to as so-called “black holes”. The reason for this development seems to be valuation which has gained importance for the determination of the NIIP at the expense of the current account. Valuation consists of (i) asset prices and (ii) real exchange rates. In this paper, demography is argued to be a determinant of assets prices, real exchange rates and the current account and hence an underlying factor with negative effects on the NIIP. Contrary to theory and previous research this paper finds a positive long-run relationship between the NIIP and population ageing in small developed countries and non-OECD countries. An annual adjustment mechanism of 12 percent is identified for small developed countries and of 27 percent for non-OECD countries. (Less)
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author
Kahn, Cecilia LU
supervisor
organization
course
NEKP01 20151
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Panel Cointegration, Demography, Valuation Channels, NIIP
language
English
id
7854452
date added to LUP
2015-09-03 15:23:28
date last changed
2015-09-03 15:23:28
@misc{7854452,
  abstract     = {This purpose of this paper is to explain the long and short run development of the Net International Investment Position (NIIP) using age structure data. Following the financial globalization, the development of the NIIP has diverged from the path of accumulated current account flows. A subsequent consequence is that despite sustained current account surpluses, NIIPs of small developed countries remain small or negative. The situations are referred to as so-called “black holes”. The reason for this development seems to be valuation which has gained importance for the determination of the NIIP at the expense of the current account. Valuation consists of (i) asset prices and (ii) real exchange rates. In this paper, demography is argued to be a determinant of assets prices, real exchange rates and the current account and hence an underlying factor with negative effects on the NIIP. Contrary to theory and previous research this paper finds a positive long-run relationship between the NIIP and population ageing in small developed countries and non-OECD countries. An annual adjustment mechanism of 12 percent is identified for small developed countries and of 27 percent for non-OECD countries.},
  author       = {Kahn, Cecilia},
  keyword      = {Panel Cointegration,Demography,Valuation Channels,NIIP},
  language     = {eng},
  note         = {Student Paper},
  title        = {Black holes and Revelations - Demography and the Net International Investment Position},
  year         = {2015},
}