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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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Publication status: published as Beigno, Pierpaolo. “Are Valuation Effects Desirable from a Global Perspective?” Journal of Development Economics 89 (2009): 170-180.
Handle: RePEc:nbr:nberwo:12219

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Citations

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Cited by:
  1. Fabio Ghironi & Jaewoo Lee & Alessandro Rebucci, 2007. "The Valuation Channel of External Adjustment," NBER Working Papers 12937, National Bureau of Economic Research, Inc.
  2. Cedric Tille, 2005. "Financial integration and the wealth effect of exchange rate fluctuations," Staff Reports 226, Federal Reserve Bank of New York.
  3. Faruk Balli & Sebnem Kalemli-Ozcan & Bent E. Sørensen, 2012. "Risk sharing through capital gains," Canadian Journal of Economics, Canadian Economics Association, vol. 45(2), pages 472-492, May.
  4. 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.
  5. Ghironi, Fabio, 2008. "The role of net foreign assets in a New Keynesian small open economy model," Journal of Economic Dynamics and Control, Elsevier, vol. 32(6), pages 1780-1811, June.
  6. Benigno, Pierpaolo, 2009. "Are valuation effects desirable from a global perspective?," Journal of Development Economics, Elsevier, vol. 89(2), pages 170-180, July.
  7. Stracca, Livio, 2010. "Is the New Keynesian IS curve structural?," Working Paper Series 1236, European Central Bank.

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