Discussion paper

DP2123 Do International Investment Income Flows Smooth Income?

We explore some empirical properties of gross international
investment positions. In order to provide income-smoothing, net
investment income should negatively covary with GDP. Moreover, to
maximize stabilization of GNP in the face of GDP fluctuations, the
yield on foreign assets should move countercyclically and the yield
on foreign liabilities procyclically. In both time-series and panel
settings, we reject these hypotheses,suggesting that positive gross
international investment positions are not associated with
income-smoothing at business-cycle frequencies.

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Citation

Lane, P (1999), ‘DP2123 Do International Investment Income Flows Smooth Income?‘, CEPR Discussion Paper No. 2123. CEPR Press, Paris & London. https://cepr.org/publications/dp2123