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Valuation effects and the dynamics of net external assets

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Listed author(s):
  • 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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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

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Find related papers by JEL classification:
  • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
  • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
  • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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  31. repec:cdl:ciders:43847 is not listed on IDEAS
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