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Are Valuation Effects Desirable from a Global Perspective?

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  • Pierpaolo Benigno

Abstract

Recent studies have emphasized the role of valuation effects due to exchange rate movements in easing the process of adjustment of the external balance of a country. This paper asks to what extent valuation effects are desirable from a global perspective as a mean to achieve an efficient allocation of resources. In a frictionless world, it is desirable to have large movements in prices and exchange rates. But once a small concern for price stability is introduced not only should prices be stabilized but also the response of the exchange rate should be muted. There is a minor role for valuation effects that depends both on the size and composition of assets and liabilities.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12219.

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Date of creation: May 2006
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Handle: RePEc:nbr:nberwo:12219

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Cited by:
  1. Jaewoo Lee & Fabio Ghironi & Alessandro Rebucci, 2009. "The Valuation Channel of External Adjustment," IMF Working Papers 09/275, International Monetary Fund.
  2. Thierry Bracke & Martin Schmitz, 2011. "Channels of international risk-sharing: capital gains versus income flows," International Economics and Economic Policy, Springer, vol. 8(1), pages 45-78, April.
  3. Pierpaolo Benigno, 2006. "Are Valuation Effects Desirable from a Global Perspective?," NBER Working Papers 12219, National Bureau of Economic Research, Inc.
  4. Stracca, Livio, 2010. "Is the New Keynesian IS curve structural?," Working Paper Series 1236, European Central Bank.
  5. Cedric Tille, 2005. "Financial Integration and the Wealth Effect of Exchange Rate Fluctuations," 2005 Meeting Papers 282, Society for Economic Dynamics.

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