NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Are Valuation Effects Desirable from a Global Perspective?

Pierpaolo Benigno

NBER Working Paper No. 12219*
Issued in May 2006
NBER Program(s):   IFM    ME

Recent studies have emphasized the role of valuation effects due to exchange rate movements in easing the process of adjustment of the external balance of a country. This paper asks to what extent valuation effects are desirable from a global perspective as a mean to achieve an efficient allocation of resources. In a frictionless world, it is desirable to have large movements in prices and exchange rates. But once a small concern for price stability is introduced not only should prices be stabilized but also the response of the exchange rate should be muted. There is a minor role for valuation effects that depends both on the size and composition of assets and liabilities.

*Published: Beigno, Pierpaolo. “Are Valuation Effects Desirable from a Global Perspective?” Journal of Development Economics 89 (2009): 170-180.

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This paper was revised on June 6, 2007

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