ASSET REVALUATION AND TRADE BALANCE UNDER LIABILITY DOLLARIZATION: THE CASE OF SOUTH KOREA

Huiran Pan ()
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Huiran Pan: California State University-Fullerton, USA

Journal of Economic Development, 2013, vol. 38, issue 3, 1-32

Abstract: For the US, recent research has found that exchange rate and asset price movements play an important role in foreign asset revaluation and international trade. This paper studies the impacts of exchange rate and asset price fluctuations on foreign asset revaluation and trade balance in South Korea. I find that asset revaluation in South Korea differs from that in the US because both Korea's foreign assets and liabilities are denominated in foreign currencies and are subject to exchange rate changes. Furthermore, as implied in recent work, external imbalance can help forecast exchange rates and portfolio returns, but now most of the forecasting power arises from trade imbalance, rather than asset imbalance.

Keywords: Intertemporal Approach; Current Account; Financial Account; Asset Revaluation (search for similar items in EconPapers)
JEL-codes: F31 F32 F36 (search for similar items in EconPapers)
Date: 2013
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