External Balance Sheets and the COVID-19 Crisis

Galina Hale and Luciana Juvenal

No 29277, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: At the onset of the COVID-19 economic crisis, as in other crisis episodes, the flight to safety was accompanied by a rapid appreciation of “safe haven” currencies. We quantify currency-induced balance sheet effects for total external positions as well as for individual asset classes using new data on the currency composition of cross-border stocks for 48 countries for the first quarter as well as for the full year 2020. We also conduct the stock-flow reconciliation of net international investment positions to measure overall valuation effects. We show that for many countries currency-induced valuation gains mitigated losses that resulted from declining asset prices in the first quarter of 2020. Moreover, for countries with excess capital out flows during this period, the impact on external balance sheet positions was mitigated by valuation gains. This is because, in contrast with past financial crises, many emerging markets did not experience negative external balance sheet effects from their currency depreciation, partly due to currency-induced valuation gains on equity positions offsetting losses on debt positions, partly due to reduced currency mismatch on their external debt positions.

JEL-codes: F32 F34 G15 (search for similar items in EconPapers)
Date: 2021-09
New Economics Papers: this item is included in nep-acc, nep-ifn, nep-isf and nep-opm
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published as Galina Hale & Luciana Juvenal, 2022. "External Balance Sheets and the COVID-19 Crisis," Journal of Banking & Finance, .

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Related works:
Journal Article: External Balance Sheets and the COVID-19 Crisis (2023)
Working Paper: External Balance Sheets and the COVID-19 Crisis (2023)
Working Paper: External Balance Sheets and the COVID-19 Crisis (2020)
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