DP2123 Do International Investment Income Flows Smooth Income?

Author(s): Philip R. Lane
Publication Date: March 1999
Keyword(s): Asset Trade, income-smoothing, international investment income flows, international investment positions
JEL(s): F02, F21, F42, G15
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2123

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.