Advanced Search
MyIDEAS: Login to save this article or follow this journal

Stocks, Flows and Valuation Effects of Foreign Assets and Liabilities: Do they Matter?

Contents:

Author Info

  • Alfredo Pistelli M.
  • Jorge Selaive C.
  • Rodrigo Valdés P.

Abstract

During the last few years, large holdings of foreign assets and liabilities along with an increasing relevance of the valuation effects—capital gains or losses—have characterized global financial integration. This paper presents an empirical assessment of the implications of stocks, flows and valuation adjustments in external crises, sovereign credit ratings and the long-run dynamics of real exchange rates (RER), in both industrial and developing economies. We find that foreign assets and liabilities are rather distinctive external holdings with different implications in the occurrence of an external crisis. Valuation adjustments have an impact on crises, although quantitatively not very large. Portfolio liabilities (particularly equity) increase the probability of current account reversals, while the likelihood of sudden stops increases with foreign direct investment assets. In the case of sovereign credit ratings, we find a noteworthy effect of the stock and flows of FDI liabilities on improvin sovereign ratings. Finally, as for the RER, gross assets and liabilities appear equally important, but components of external holdings have considerably different effects. While the cumulative current account is associated with real depreciation, the valuation effect is strongly linked with real currency appreciations in developing economies.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.bcentral.cl/eng/studies/economia-chilena/2007/dic/v10n3dic2007pp19-44.pdf
Download Restriction: no

Bibliographic Info

Article provided by Central Bank of Chile in its journal Economía Chilena.

Volume (Year): 10 (2007)
Issue (Month): 3 (December)
Pages: 19-44

as in new window
Handle: RePEc:chb:bcchec:v:10:y:2007:i:3:p:19-44

Contact details of provider:
Postal: Casilla No967, Santiago
Phone: (562) 670 2000
Fax: (562) 698 4847
Web page: http://www.bcentral.cl/
More information through EDIRC

Related research

Keywords:

Other versions of this item:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November.
  2. Obstfeld, Maurice & Rogoff, Kenneth S., 1995. "Exchange Rate Dynamics Redux," Scholarly Articles 12491026, Harvard University Department of Economics.
  3. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," CEPR Discussion Papers 1131, C.E.P.R. Discussion Papers.
  4. Flood, Robert & Marion, Nancy, 1999. "Perspectives on the Recent Currency Crisis Literature," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 4(1), pages 1-26, January.
  5. Sergio Godoy W., 2006. "Determinantes de la Clasificación de Riesgo Soberano de las Economías Emergentes," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 9(3), pages 109-123, December.
  6. Milesi-Ferretti, Gian Maria & Razin, Assaf, 1998. "Current Account Reversals and Currency Crises: Empirical Regularities," CEPR Discussion Papers 1921, C.E.P.R. Discussion Papers.
  7. Mark Rider, 1994. "External Debt and Liabilities of Industrial Countries," RBA Research Discussion Papers rdp9405, Reserve Bank of Australia.
  8. Dani Rodrik & Andres Velasco, 1999. "Short-Term Capital Flows," NBER Working Papers 7364, National Bureau of Economic Research, Inc.
  9. Obstfeld, Maurice, 1996. "Models of Currency Crises with Self-fulfilling Features," CEPR Discussion Papers 1315, C.E.P.R. Discussion Papers.
  10. Philip Lane & Gian Maria Milesi-Ferretti, 2001. "THE EXTERNAL WEALTH OF NATIONS: Measures of Foreign Assets and Liabilities For Industrial and Developing Countries," Trinity Economics Papers 20014, Trinity College Dublin, Department of Economics.
  11. Block, Steven A. & Vaaler, Paul M., 2004. "The price of democracy: sovereign risk ratings, bond spreads and political business cycles in developing countries," Journal of International Money and Finance, Elsevier, vol. 23(6), pages 917-946, October.
  12. Alvaro Aguirre & César Calderón, 2005. "Real Exchange Rate Misalignments and Economic Performance," Working Papers Central Bank of Chile 316, Central Bank of Chile.
  13. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Department of Economics Working Papers 2000-02, Department of Economics, Williams College.
  14. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
  15. Ofair Razin & Susan M. Collins, 1997. "Real Exchange Rate Misalignments and Growth," International Finance 9707001, EconWPA.
  16. Steven Radelet & Jeffrey Sachs, 1998. "The Onset of the East Asian Financial Crisis," NBER Working Papers 6680, National Bureau of Economic Research, Inc.
  17. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
  18. Suzanne McCoskey & Chihwa Kao, 1998. "A residual-based test of the null of cointegration in panel data," Econometric Reviews, Taylor & Francis Journals, vol. 17(1), pages 57-84.
  19. Guillermo A. Calvo, 1998. "Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 35-54, November.
  20. Ofair Razin & Susan M. Collins, 1997. "Real Exchange Rate Misalignments and Growth," NBER Working Papers 6174, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Davide Furceri & Stéphanie Guichard & Elena Rusticelli, 2011. "Episodes of Large Capital Inflows and the Likelihood of Banking and Currency Crises and Sudden Stops," OECD Economics Department Working Papers 865, OECD Publishing.
  2. Jorge Selaive & Pablo Pincheira B., 2008. "External Imbalances, Valuation Adjustments and Real Exchange Rate: Evidence of Predictability in an Emerging Economy," Working Papers Central Bank of Chile 460, Central Bank of Chile.
  3. Luis Catão & Gian-Maria Milesi-Ferretti, 2013. "External Liabilities and Crises," IMF Working Papers 13/113, International Monetary Fund.
  4. Rodrigo Caputo & Miguel Fuentes, 2012. "Government Spending and the Real Exchange Rate: a Cross - Country Perspective," Working Papers Central Bank of Chile 655, Central Bank of Chile.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:chb:bcchec:v:10:y:2007:i:3:p:19-44. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudio Sepulveda).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.