TY  - JOUR
AU  - Devereux,Michael B.
AU  - Sutherland,Alan
TI  - Valuation Effects and the Dynamics of Net External Assets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14794
PY  - 2009
Y2  - March 2009
UR  - http://www.nber.org/papers/w14794
L1  - http://www.nber.org/papers/w14794.pdf
N1  - Author contact info:
Michael B. Devereux
Department of Economics
University of British Columbia
997-1873 East Mall
Vancouver, BC V6T 1Z1
CANADA
Tel: 604/822-2542
Fax: 604/822-5915
E-Mail: mbdevereux@gmail.com

Alan Sutherland
Department of Economics
University of St. Andrews
St. Andrews, Fife KY16 9AL
UK
E-Mail: ajs10@st-and.ac.uk
AB  - 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.
ER  -