Valuation effects and the dynamics of net external assets

Michael B. Devereux, Alan Sutherland

    Research output: Contribution to journalArticlepeer-review

    39 Citations (Scopus)


    '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 languageEnglish
    Pages (from-to)129-143
    Number of pages15
    JournalJournal of International Economics
    Issue number1
    Early online date11 Jun 2009
    Publication statusPublished - Jan 2010


    • Valuation effects
    • Net foreign asset dynamics
    • Current account imbalances
    • Country portfolios
    • Risk sharing
    • WEALTH
    • PUZZLE


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