The International Investment Position: Measurement Aspects and Usefulness forMonetary Policy and Financial Stability Issues

The international investment position (IIP) is the balance sheet of a country’s external assets and liabilities. It can be used to measure the degree of financial openness of a country and to provide indications on the sustainability of its external debt. As such, it is a helpful tool for monitoring financial stability. Although studies of the IIP are fairly new, we shall review some mechanisms through which this aggregate can impact on variables relating to monetary policy, such as interest rates and exchange rates for a medium to long-term horizon. These variables may in turn explain shifts in the external balance sheet, due in particular to revaluation changes, that may lead to wealth effects at a macroeconomic level. As an illustration we shall briefly analyze developments in the French IIP during the 1990s. We shall conclude by suggesting ways of improving the compilation of external balance sheet statistics.