Nominal Exchange Rates and Net Foreign Assets' Dynamics: the Stabilization Role of Valuation Effects

Sara Eugeni

No 2017_09, Department of Economics Working Papers from Durham University, Department of Economics

Abstract: This paper proposes a theory of nominal exchange rate determination to shed light on its role in countries’ portfolio choices and its impact on the dynamics of net foreign assets through valuation effects. The model can rationalize the behavior of the US external position over the past 20 years, which has been characterized by persistent current account deficits and stabilizing valuation effects, as a consequence of the increase in emerging market countries’ share of world GDP. We also show quantitatively that the valuation channel is a key component of the process of external adjustment, consistently with the empirical literature.

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)
JEL-codes: F31 F32 F36 F41 (search for similar items in EconPapers)
Date: 2017-08
New Economics Papers: this item is included in nep-mon and nep-opm
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Related works:
Journal Article: Nominal exchange rates and net foreign assets' dynamics: The stabilization role of valuation effects (2024)
Working Paper: Nominal Exchange Rates and Net Foreign Assets' Dynamics: the Stabilization Role of Valuation Effects (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:dur:durham:2017_09

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