 Valuation effects and long-run real exchange rate dynamicsMariya Mileva Journal of International Money and Finance, 2015, vol. 51, issue C, 390-408 Abstract: This paper uses the Johansen test for cointegration to check the prediction of a portfolio balance model that predictable valuation effects are associated with a saddle-path dynamic relationship between the net foreign asset position and the real exchange rate. The analysis uses newly constructed quarterly series on the net foreign position as a percentage of the nominal gross domestic product, together with data on real effective exchange rate indices for a sample of developed countries which borrow in their own currency. The results indicate that the net foreign asset position and the real exchange rate are not cointegrated for all the countries in the sample. The rejection of saddle-path dynamics suggests that predictable valuation effects are quantitatively small in developed countries. The rejection of cointegration suggests that the net foreign asset position is not a determinant for long-run real exchange rates in developed countries. Keywords: Saddle-path dynamics; Real exchange rate; Portfolio balance model; Valuation effect; Cointegration; International imbalances (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:51:y:2015:i:c:p:390-408 DOI: 10.1016/j.jimonfin.2014.12.004 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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