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

The dataset
Data on foreign assets and
liabilities, classified by asset type
(debt, portfolio equity, FDI)
 Extension of their 2001 IJE paper

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
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
Limits from data
availability

Still few observations for several
countries


Value of cross-sectional versus timeseries analysis
Data availability at a quarterly frequency
for IC group?
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
Returns


Access to data on returns by asset
class
Insight on portfolio composition as
well as returns differentials across
asset categories and countries
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)
The valuation channel
(cont’d)
Components of Changes in the Net International Investment Position
With Direct Investment at Market Value, 1989-2004
[Millions of dollars]
Changes in position
Attributable to
Year
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Position
Beginning
10,466
-46,987
-164,495
-260,819
-452,305
-144,268
-135,251
-305,836
-360,024
-822,732
-1,070,769
-1,037,437
-1,581,007
-2,339,448
-2,455,114
-2,372,370
Financial
flows
(a)
-49,545
-60,337
-46,420
-96,253
-81,490
-127,052
-86,298
-137,687
-221,334
-69,740
-236,148
-486,373
-400,243
-500,316
-560,646
-584,597
Valuation adjustments
Total
ExchangeOther
Price
rate
changes
changes2
changes1
(b)
(c)
(d)
(a+b+c+d)
7,129
-15,392
355
-57,453
-148,620
57,042
34,407
-117,508
-95,789
4,643
41,242
-96,324
-75,554
-74,991
55,312
-191,486
292,716
-21,969
118,780
308,037
23,172
73,069
39,828
9,017
-152,461
39,018
29,156
-170,585
84,188
-66,076
65,387
-54,188
-92,069
-207,625
58,320
-462,708
-287,874
68,120
41,457
-248,037
329,672
-125,970
65,778
33,332
133,716
-270,594
79,681
-543,570
-224,184
-151,685
17,671
-758,441
-59,582
231,247
212,985
-115,666
-1,716
415,507
229,599
82,744
146,514
272,278
-4,070
-169,875
Position
Ending
-46,987
-164,495
-260,819
-452,305
-144,268
-135,251
-305,836
-360,024
-822,732
-1,070,769
-1,037,437
-1,581,007
-2,339,448
-2,455,114
-2,372,370
-2,542,245
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
