The Valuation Channel of External Adjustment

45 Pages Posted: 5 Jan 2010

See all articles by Fabio Pietro Ghironi

Fabio Pietro Ghironi

University of Washington

Jaewoo Lee

International Monetary Fund (IMF) - Research Department

Alessandro Rebucci

Johns Hopkins University - Carey Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: December 2009

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, Economic models, External shocks, Financial sector, Foreign exchange, Government expenditures, International capital markets, Productivity

Suggested Citation

Ghironi, Fabio Pietro and Lee, Jaewoo and Rebucci, Alessandro, The Valuation Channel of External Adjustment (December 2009). IMF Working Papers, Vol. , pp. 1-44, 2009. Available at SSRN: https://ssrn.com/abstract=1531508

Fabio Pietro Ghironi (Contact Author)

University of Washington ( email )

Department of Economics
Box 353330
Seattle, WA 98195-3330
United States
206-543-5795 (Phone)

HOME PAGE: http://faculty.washington.edu/ghiro

Jaewoo Lee

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7331 (Phone)
202-623-6334 (Fax)

Alessandro Rebucci

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://carey.jhu.edu/faculty-research/faculty-directory/alessandro-rebucci-phd

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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