Based on the intertemporal theoretical
framework of Gourinchas and Rey( 2005), using Vector Error Correction Model and time-varying Space State
Model, the paper estimates the return and factors of China’s net foreign assets. The
results show that significant negative valuation effects in the change of net
foreign assets and its sub-category, “risk assets”, especially at short and
medium horizons. The fluctuation of assets prices arising from international
financial crisis and appreciation of RMB contribute to the losses of external
wealth, implying much wealth outflow to other economies.
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