 Nominal exchange rates and net foreign assets' dynamics: The stabilization role of valuation effectsJournal of International Money and Finance, 2024, vol. 141, issue C Abstract: This paper proposes a parsimonious OLG model with output shocks to shed light on the impact of the nominal exchange rate on the dynamics of net foreign assets through valuation effects. We show that an increase in the share of world GDP leads to a trade surplus and negative valuation effects through an appreciation of the nominal exchange rate. The lack of perfect arbitrage in the model implies that the valuation channel is a key component of the process of external adjustment, consistently with the empirical literature. Finally, we provide empirical evidence in support of the role of the share of world GDP in generating trade balance and exchange rate/valuation effects dynamics. Keywords: Nominal exchange rate determination; Valuation effects; Endogenous portfolio choice; Net foreign assets' dynamics; Incomplete markets; Overlapping generations economies (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:141:y:2024:i:c:s0261560624000056 DOI: 10.1016/j.jimonfin.2024.103018 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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