The Valuation Channel of External Adjustment

By Jaewoo Lee, Fabio Ghironi, Alessandro Rebucci

December 1, 2009

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Jaewoo Lee, Fabio Ghironi, and Alessandro Rebucci. The Valuation Channel of External Adjustment, (USA: International Monetary Fund, 2009) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Asset valuation, Consumption, Expenditure, Foreign assets, Stocks

Keywords: Government spending, WP

Publication Details

Pages:

44
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/275
Stock No:

WPIEA2009275
ISBN:

9781451874204
ISSN:

1018-5941

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