Stocks, Flows and Valuation Effects of Foreign Assets and Liabilities: Do They Matter?

Alfredo Pistelli, Jorge Selaive () and Rodrigo Valdés

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: Large holdings of foreign assets and liabilities, along with increasing relevance of valuation effects—capital gains or losses—have characterized global financial integration. In this paper, we assess empirically the implications of stocks, flows and valuation adjustments in external crises (current-account reversals, sudden stops and currency crises), sovereign credit ratings and the longrun real exchange rates (RER), in both industrial and developing economies. We find support for the view that foreign assets and liabilities are rather distinctive external holdings with different implications in the occurrence of external crisis. Valuation adjustments have an impact on crises, although quantitatively not very large. Portfolio liabilities (particularly equity) increase the probability of current-account reversals and currency crises, while the likelihood of sudden stops increases with the stock of foreign direct investment (FDI) assets. In the case of sovereign credit ratings, we find a noteworthy effect of the stock and flows of FDI liabilities on improving sovereign ratings. Finally, as for the RER, gross assets and liabilities appear equally important, but components of external holdings have considerably different effects. While the cumulative current account is associated with real depreciation, the valuation effect is strongly linked with real currency appreciations in developing economies.

Date: 2007-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://www.bcentral.cl/documents/33528/133326/DTBC_443.pdf (application/pdf)

Related works:
Chapter: Stocks, Flows, and Valuation Effects of Foreign Assets and Liabilities: Do They Matter? (2008)
Journal Article: Stocks, Flows and Valuation Effects of Foreign Assets and Liabilities: Do they Matter? (2007)
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:chb:bcchwp:443

Access Statistics for this paper

More papers in Working Papers Central Bank of Chile from Central Bank of Chile Contact information at EDIRC.
Bibliographic data for series maintained by Alvaro Castillo ().