The anatomy of large valuation episodes

Authors: Agustín S Bénétrix

Publish Date: 2009/09/11

Volume: 145, Issue: 3, Pages: 489-

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Abstract

We examine cases in which there is a large shift in a country’s net foreign asset position due to the revaluation of its foreign assets and/or foreign liabilities We highlight the differences in large valuation shocks between countries characterized by large gross stocks of foreign assets and foreign liabilities and countries exhibiting large net external positions Finally we analyze macroeconomic dynamics in the neighborhood of large valuation episodesThe author would like to thank an anonymous referee for helpful comments and suggestions Philip R Lane for his continuous encouragement and help with the External Wealth of Nations database The author gratefully acknowledges the Institute for International Integration Studies IIIS at Trinity College Dublin for financial supportCountries The set of countries used to identify the 59 large valuation shocks is formed by 17 emerging markets and developing countries and 21 advanced countries The former is composed of Argentina Brazil Chile China Colombia India Indonesia Israel Korea Malaysia Mexico Pakistan the Philippines South Africa Thailand Turkey and Venezuela The latter group is formed by Australia Austria Canada Denmark Finland France Germany Greece Iceland Ireland Italy Japan the Netherlands New Zealand Norway Portugal Spain Sweden Switzerland the United Kingdom and the United StatesData Stocks and flows of foreign assets and liabilities Lane and MilesiFerretti 2007a Trade balance Direction of Trade Statistics IMF Constant GDP in local currency World Development Indicators Current account balance and real exchange rate International Financial Statistics IMF Equity price index Morgan Stanley Capital International Inc Total return bond index Global Financial Data Foreign assets are the sum of portfolio equity assets foreign direct investment and debt assets debt assets includes foreign exchange reserves minus gold Foreign liabilities are the sum of portfolio equity liabilities foreign direct investment and debt liabilities

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