Net Foreign Assets in the Euro Area : A Cointegration Analysis

This paper discusses the macroeconomics of NFA at the Euro Area level. A stylized theoretical model of an open economy, with portfolio choices, and the cointegrated VAR methodology applied to a system including: the real effective exchange rate, domestic and world real GDP per-capita, domestic and foreign real long-term interest rate, domestic real short-term interest rate and the NFA/GDP ratio appear as an adequate choice. The main conclusion of the paper is that, at least in terms of international investment position, the launching of EMU should not have produced radical changes with respect to the past and with respect to what economic theory leads us to expect. Real growth and exchange rate appreciation are both consistent with NFA accumulation. Portfolio adjustment considerations are also important