External Balance Sheets and the COVID-19 Crisis

Galina Hale and Luciana Juvenal

Santa Cruz Department of Economics, Working Paper Series from Department of Economics, UC Santa Cruz

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: Banking; Finance and Investment; Commerce; Management; Tourism and Services; Currency mismatch; Balance sheet effects; Valuation effects; COVID-19; Applied Mathematics; Economic Theory; Finance; Banking; finance and investment; Applied mathematics (search for similar items in EconPapers)
Date: 2023-02-01
New Economics Papers: this item is included in nep-acc and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.escholarship.org/uc/item/00p8f01t.pdf;origin=repeccitec (application/pdf)

Related works:
Journal Article: 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)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cdl:ucscec:qt00p8f01t

Access Statistics for this paper

More papers in Santa Cruz Department of Economics, Working Paper Series from Department of Economics, UC Santa Cruz Contact information at EDIRC.
Bibliographic data for series maintained by Lisa Schiff ().