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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, 2009. "The valuation channel of external adjustment," Working Papers 09-18, Federal Reserve Bank of Boston.
  2. Balli, Faruk & Kalemli-Ozcan, Sebnem & Sørensen, Bent E, 2011. "Risk Sharing through Capital Gains," CEPR Discussion Papers 8643, C.E.P.R. Discussion Papers.
  3. Stracca, Livio, 2010. "Is the New Keynesian IS curve structural?," Working Paper Series 1236, European Central Bank.
  4. Benigno, Pierpaolo, 2009. "Are valuation effects desirable from a global perspective?," Journal of Development Economics, Elsevier, vol. 89(2), pages 170-180, July.
  5. Cedric Tille, 2005. "Financial integration and the wealth effect of exchange rate fluctuations," Staff Reports 226, Federal Reserve Bank of New York.
  6. Bracke, Thierry & Schmitz, Martin, 2008. "Channels of international risk-sharing: capital gains versus income flows," Working Paper Series 0938, European Central Bank.
  7. 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.

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