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The Valuation Channel of External Adjustment

Jaewoo Lee (), Fabio Ghironi () and Alessandro Rebucci ()

No 09/275, IMF Working Papers from International Monetary Fund

Abstract: International financial integration has greatly increased the scope for changes in a country's net foreign asset position through the valuation channel, namely capital gains and losses on external assets and liabilities. We examine this valuation channel in a dynamic equilibrium portfolio model with international trade in equity. By separating asset prices and quantities, we can characterize the first-order dynamics of valuation effects and the current account in macroeconomic dynamics. Specifically, we disentangle the roles of excess returns, capital gains, and portfolio adjustment for consumption risk sharing when financial markets are incomplete.

Keywords: Asset prices; Capital transactions; Current account; External shocks; Economic models; Financial sector; Productivity; Foreign exchange; Government expenditures; International capital markets; Net foreign assets, Risk sharing, Valuation, foreign asset, foreign assets, net foreign asset, foreign asset position, (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge and nep-opm
Date: 2009-12-01
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Related works:
Journal Article: The valuation channel of external adjustment (2015) Downloads
Working Paper: The Valuation Channel of External Adjustment (2015) Downloads
Working Paper: The Valuation Channel of External Adjustment (2009) Downloads
Working Paper: The valuation channel of external adjustment (2009) Downloads
Working Paper: The Valuation Channel of External Adjustment (2007) Downloads
Working Paper: The Valuation Channel of External Adjustment (2006) Downloads
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