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Can the Canadian International Investment Position Stabilize a Slowing Economy?

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Listed:
  • Maxime Leboeuf
  • Chen Fan

Abstract

In this note, we find that valuation effects can act as an important stabilizer, strengthening Canada’s net external wealth when its economic outlook worsens relative to that of other countries. This is particularly true when the Canadian dollar depreciates against the US dollar and the Canadian outlook worsens compared with that of the United States. Such was the case during the 2014–15 oil price shock, where valuation effects boosted Canada’s net international investment position (NIIP) by 30 per cent of GDP.

Suggested Citation

  • Maxime Leboeuf & Chen Fan, 2017. "Can the Canadian International Investment Position Stabilize a Slowing Economy?," Staff Analytical Notes 17-14, Bank of Canada.
    • Handle: RePEc:bca:bocsan:17-14
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    References listed on IDEAS

    as
    1. Bénétrix, Agustin S. & Lane, Philip R. & Shambaugh, Jay C., 2015. "International currency exposures, valuation effects and the global financial crisis," Journal of International Economics, Elsevier, vol. 96(S1), pages 98-109.
    2. Lise Pichette, 2004. "Are Wealth Effects Important for Canada," Bank of Canada Review, Bank of Canada, vol. 2004(Spring), pages 29-35.
    3. Kristin Forbes & Ida Hjortsoe & Tsvetelina Nenova, 2017. "Current Account Deficits During Heightened Risk: Menacing or Mitigating?," Economic Journal, Royal Economic Society, vol. 0(601), pages 571-623, May.
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    More about this item

    Keywords

    Balance of payments and components; International financial markets;

    JEL classification:

    • F - International Economics
    • F2 - International Economics - - International Factor Movements and International Business
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F3 - International Economics - - International Finance
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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