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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. (C) 2009 Elsevier B.V. All rights reserved.
Original language | English |
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Pages (from-to) | 129-143 |
Number of pages | 15 |
Journal | Journal of International Economics |
Volume | 80 |
Issue number | 1 |
Early online date | 11 Jun 2009 |
DOIs | |
Publication status | Published - Jan 2010 |
Keywords
- Valuation effects
- Net foreign asset dynamics
- Current account imbalances
- Country portfolios
- Risk sharing
- FOREIGN-ASSETS
- LIABILITIES
- NATIONS
- WEALTH
- PUZZLE
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Dive into the research topics of 'Valuation effects and the dynamics of net external assets'. Together they form a unique fingerprint.Projects
- 1 Finished
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ESRC RES-156-25-0027: Monetary policy welfare and the structure of international financial markets
Sutherland, A. (PI)
Economic & Social Research Council
1/01/06 → 30/06/07
Project: Standard