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The Valuation Channel of External Adjustment
Author:
Mr. Jaewoo Lee
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Mr. Fabio Ghironi null

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Mr. Alessandro Rebucci
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Series:
IMF Working Papers
Volume/Issue:
Volume 2009: Issue 275
Language:
English
Publication Date:
01 Dec 2009
DOI:
https://doi.org/10.5089/9781451874204.001
ISBN:
9781451874204
ISSN:
1018-5941
Pages:
44
Keywords:
WP; government spending
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund