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

1
Discussion of The 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 (contd)
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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