NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Valuation Effects and the Dynamics of Net External Assets

Michael B. Devereux, Alan Sutherland

NBER Working Paper No. 14794
Issued in March 2009
NBER Program(s):   IFM

The traditional current account can be an inaccurate measure of the change in the net foreign asset (NFA) position. Using gross asset and liability positions at the country level, a number of 'valuation effects' have been identified which contribute to changes in NFA but do not enter the reported current account. This paper uses new developments in the analysis of portfolio allocation in general equilibrium to investigate valuation effects in a two-country model. The model can be used to analyze both qualitatively and quantitatively the role of valuation effects. Broadly speaking, the valuation effects in the model correspond to those in the data, and have the effect of enhancing cross country risk sharing. But there is a key distinction between "unanticipated" and "anticipated" valuation effects. Unanticipated effects can be large, dominating the movement in NFA, but anticipated effects arise only at higher orders of approximation and are small for reasonable parameterisations. The paper also analyses the determinants of international portfolio positions, and their role in generating valuation effects from asset price and terms of trade changes.

download in pdf format
   (584 K)

email paper

This paper is available as PDF (584 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w14794

Published: Devereux, Michael B. & Sutherland, Alan, 2010. "Valuation effects and the dynamics of net external assets," Journal of International Economics, Elsevier, vol. 80(1), pages 129-143, January.

Users who downloaded this paper also downloaded these:
Devereux and Sutherland w14372 Country Portfolios in Open Economy Macro Models
Devereux and Yetman w16226 Leverage Constraints and the International Transmission of Shocks
Ghironi, Lee, and Rebucci w12937 The Valuation Channel of External Adjustment
Lane and Milesi Ferretti A Global Perspective on External Positions
Devereux, Smith, and Yetman w14795 Consumption and Real Exchange Rates in Professional Forecasts
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us