Modeling Direct Investment Valuation Adjustments and Estimating Quarterly Positions

37 Pages Posted: 10 May 2006

See all articles by Jaime Marquez

Jaime Marquez

Board of Governors of the Federal Reserve System - International Financial Transactions Section

Jane E. Ihrig

Federal Reserve Board - International Financial Transactions

Date Written: April 2006

Abstract

This paper takes an in-depth look at U.S. direct investment valuation adjustments. We develop a methodology to generate valuation adjustments at the quarterly frequency, which can be combined with the Bureau of Economic Analysis's quarterly direct investment flows to obtain quarterly estimates of direct investment assets and liabilities. Our methodology involves two steps. First, we estimate valuation adjustment models with annual data. Our models rely on variables that reflect terms used by the Bureau of Economic Analysis in their data construction: exchange-rate changes, changes in the price of products, and changes in stock-market prices. Second, we apply quarterly data to the estimated models to generate quarter valuations and implement a procedure that ensures that the estimated valuations for the four quarters in a given year sum to the reported annual valuation adjustments. With this framework we consider how asset price shocks affect the net direct investment position and, hence, net international investment position.

Keywords: net direct investment position, net international investment position, exchange rates, stock markets

JEL Classification: C51, C53, F21, F37, F47

Suggested Citation

Marquez, Jaime and Ihrig, Jane E., Modeling Direct Investment Valuation Adjustments and Estimating Quarterly Positions (April 2006). Board of Governors of the Federal Reserve System Research Paper No. 857. Available at SSRN: https://ssrn.com/abstract=901585 or http://dx.doi.org/10.2139/ssrn.901585

Jaime Marquez (Contact Author)

Board of Governors of the Federal Reserve System - International Financial Transactions Section ( email )

20th and C Streets, NW
Washington, DC 20551
United States

Jane E. Ihrig

Federal Reserve Board - International Financial Transactions ( email )

20th and C Streets, NW
Washington, DC 20551
United States
202-452-3372 (Phone)
202-736-5638 (Fax)

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