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Valuation effects in the Spanish International Investment Position

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  • Arturo Macías

    ()
    (Banco de España)

  • Álvaro Nash

    ()
    (Banco Central de Chile)

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    Abstract

    The International Investment Position records the value of foreign assets and liabilities of an economy in a given date. Its evolution is determined by the financial transactions of the Balance of Payments, which affects the volume of assets and liabilities, by differences in the valuation of the stock, derived from changes in prices or exchange rates, and by other adjustments, that are primarily reclassifications of foreign assets. The objective of this article is to compute the price and exchange rate effects implicit in the evolution of the International Investment Position of Spain, taking into account its possible limitations. The valuation effects are determined by the characteristics of the financial instrument and the information sources available for every heading of the IIP. In this article, disaggregated data by denomination currency of the instrument are used for every heading. On the other hand, for portfolio investment, asset-by-asset data available for 2003 and 2004 are used. In addition, for IED data, which are mainly not recorded at market price (and given that price changes for those instruments between 1993 and 2006 have been substantial), it is developed a methodology in order to reconstruct the value of IED assets and liabilities, including the valuation associated with price changes. The conclusions of this work for the Spanish case provide evidence that stock revaluation explains a very important share of the IIP changes for the latest years. The 55% of the increase of the IIP between 1993 and 2004 is related to value changes due to price or exchange rate changes. The accumulation of these value changes is equal to the 19% of the GDP of the year 2004. The decomposition of this effect between price effect and exchange rate effect can be estimated for 1997-2004 period, and the increase in the net IIP debt position (247.930 million euros) can be explained in a 52% by Balance of Payments transactions, and 47.3% is the result of revaluation of the instruments and other adjustments. This 47.3% can be decomposed in a 27.6% due to price effects, 10.1% due to exchange rate effects and the remaining 9.6% is the result of other non determined variations.

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosOcasionales/07/Fic/do0704.pdf
    File Function: First spanish version, August 2007
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    Bibliographic Info

    Paper provided by Banco de Espa�a in its series Banco de Espa�a Occasional Papers with number 0704.

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    Length: 52 pages
    Date of creation: Aug 2007
    Date of revision:
    Handle: RePEc:bde:opaper:0704

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    Keywords: posición de inversión internacional; balanza de pagos; efecto valoración; inversión exterior directa; international investment position; balance of payments; valuation effects; foreign direct investment;

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    1. Gourinchas, Pierre-Olivier & Rey, Hélène, 2005. "International Financial Adjustment," CEPR Discussion Papers 4923, C.E.P.R. Discussion Papers.
    2. Esteban Jadresic & Sergio Lehman & Álvaro Rojas & Jorge Selaive & Alberto Naudon, 2003. "Análisis del Balance Financiero Externo de Chile," Economic Policy Papers Central Bank of Chile 07, Central Bank of Chile.
    3. Lane, Philip & Milesi-Ferretti, Gian Maria, . "External Wealth of Nations," Instructional Stata datasets for econometrics extwealth, Boston College Department of Economics.
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