External Balance Sheets and the COVID-19 Crisis

Galina Hale and Luciana Juvenal

Journal of Banking & Finance, 2023, vol. 147, issue C

Abstract: At the onset of the COVID-19 economic crisis, as in other crisis episodes, we observed a rapid appreciation of “safe haven” currencies. We quantify currency-induced balance sheet valuation effects for aggregate external positions as well as for broadly defined asset classes for the first quarter and the full year 2020. To do so, we use new data on the currency composition of cross-border assets and liabilities for 46 countries. In contrast with past financial crises, many emerging markets did not experience losses on their aggregate external balance sheets despite facing a domestic currency depreciation. This was partly due to currency-induced valuation gains on equity positions offsetting losses on debt positions, and partly due to reduced currency mismatch on their external debt positions. We conduct the stock-flow reconciliation of net international investment positions to measure overall valuation effects and compute the proportion that is due to changes in currency values. For about half of the countries in our sample, currency-induced valuation effects were substantial, representing over 50 percent of total valuation effects in 2020Q1 and the full year 2020.

Keywords: Currency mismatch; Balance sheet effects; Valuation effects; COVID-19 (search for similar items in EconPapers)
JEL-codes: F32 F34 G15 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: External Balance Sheets and the COVID-19 Crisis (2023)
Working Paper: External Balance Sheets and the COVID-19 Crisis (2021)
Working Paper: External Balance Sheets and the COVID-19 Crisis (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:147:y:2023:i:c:s0378426622001662

DOI: 10.1016/j.jbankfin.2022.106570

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