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Valuation effects and the dynamics of net external assets

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  • Devereux, Michael B.
  • Sutherland, Alan

Abstract

'Valuation effects' can imply that the traditional current account is an inaccurate measure of the change in the net foreign asset (NFA) position. This paper uses new developments in the analysis of portfolio choice in general equilibrium to investigate valuation effects in a two-country model. Broadly speaking, the valuation effects in the model correspond to those observed in the data. But there is a key distinction between 'unanticipated' and 'anticipated' valuation effects. Unanticipated effects can be large, dominating the movement in NFA, but anticipated effects arise only at higher orders of approximation and are small for reasonable parameterizations.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 80 (2010)
Issue (Month): 1 (January)
Pages: 129-143

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Handle: RePEc:eee:inecon:v:80:y:2010:i:1:p:129-143

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Web page: http://www.elsevier.com/locate/inca/505552

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Keywords: Valuation effects Net foreign asset dynamics Current account imbalances Country portfolios Risk sharing;

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References

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