{
  "title": "The Valuation Channel of External Adjustment",
  "publication": "IMF Working Papers, December 1, 2009",
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  "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.",
  "sections": [
    {
      "heading": "Abstract / Summary",
      "content": "- 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.\n- The paper examines the valuation channel in a dynamic equilibrium portfolio model with international trade in equity.\n- By separating asset prices and quantities, the authors characterize the first-order dynamics of valuation effects and the current account in macroeconomic dynamics.\n- The analysis disentangles the roles of excess returns, capital gains, and portfolio adjustment for consumption risk sharing when financial markets are incomplete."
    },
    {
      "heading": "Authors and Publication",
      "content": "- Authors: Jaewoo Lee, Fabio Ghironi, Alessandro Rebucci\n- Publication date: December 1, 2009\n- Series: Working Paper No. 2009/275\n- Issue: 275\n- Volume: 2009\n- Pages: 44\n- DOI: https://doi.org/10.5089/9781451874204.001\n- Stock No: WPIEA2009275\n- ISBN: 9781451874204\n- ISSN: 1018-5941"
    },
    {
      "heading": "Methodology and Analytical Framework",
      "content": "- Framework: Dynamic equilibrium portfolio model with international trade in equity.\n- Key modeling approach: Separation of asset prices and asset quantities to identify first-order dynamics.\n- Focus: Interaction among excess returns, capital gains, and portfolio adjustment under financial market incompleteness.\n- Outcome measures: Valuation effects on net foreign asset positions and implications for the current account and consumption risk sharing."
    },
    {
      "heading": "Key Findings",
      "content": "- International financial integration amplifies potential changes in net foreign asset positions via valuation (capital gains and losses).\n- Valuation effects can materially affect the current account dynamics once asset price and quantity dynamics are separated.\n- Excess returns, capital gains, and portfolio adjustment play distinct roles in enabling or constraining consumption risk sharing across countries when markets are incomplete."
    },
    {
      "heading": "Policy-Relevant Implications",
      "content": "- Monitoring valuation-driven changes in net foreign assets is essential for understanding external adjustment beyond trade flows.\n- Consideration of asset price dynamics and portfolio composition is important for assessing vulnerabilities related to cross-border equity holdings.\n- Policies aimed at improving consumption risk sharing should account for the limited role of portfolio adjustment under market incompleteness and the separate contributions of excess returns and capital gains.\n\nItalic: IMF Working Paper — \"The Valuation Channel of External Adjustment\" by Jaewoo Lee, Fabio Ghironi, and Alessandro Rebucci; accessed 9/18/2026; DOI: https://doi.org/10.5089/9781451874204.001\n\n---\n\n Content in this bundle\n\n- wp09275\n  - wp09275 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp09275 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/the-valuation-channel-of-external-adjustment-23447"
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    "Authors: Jaewoo Lee, Fabio Ghironi, Alessandro Rebucci",
    "Published: December 1, 2009",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451874204.001",
    "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.",
    "The paper examines the valuation channel in a dynamic equilibrium portfolio model with international trade in equity.",
    "By separating asset prices and quantities, the authors characterize the first-order dynamics of valuation effects and the current account in macroeconomic dynamics.",
    "The analysis disentangles the roles of excess returns, capital gains, and portfolio adjustment for consumption risk sharing when financial markets are incomplete.",
    "Authors: Jaewoo Lee, Fabio Ghironi, Alessandro Rebucci",
    "Publication date: December 1, 2009",
    "Series: Working Paper No. 2009/275",
    "Issue: 275",
    "Volume: 2009",
    "Pages: 44",
    "DOI: https://doi.org/10.5089/9781451874204.001",
    "Stock No: WPIEA2009275",
    "ISBN: 9781451874204",
    "ISSN: 1018-5941",
    "Framework: Dynamic equilibrium portfolio model with international trade in equity.",
    "Key modeling approach: Separation of asset prices and asset quantities to identify first-order dynamics.",
    "Focus: Interaction among excess returns, capital gains, and portfolio adjustment under financial market incompleteness.",
    "Outcome measures: Valuation effects on net foreign asset positions and implications for the current account and consumption risk sharing.",
    "International financial integration amplifies potential changes in net foreign asset positions via valuation (capital gains and losses).",
    "Valuation effects can materially affect the current account dynamics once asset price and quantity dynamics are separated.",
    "Excess returns, capital gains, and portfolio adjustment play distinct roles in enabling or constraining consumption risk sharing across countries when markets are incomplete.",
    "Monitoring valuation-driven changes in net foreign assets is essential for understanding external adjustment beyond trade flows.",
    "Consideration of asset price dynamics and portfolio composition is important for assessing vulnerabilities related to cross-border equity holdings.",
    "Policies aimed at improving consumption risk sharing should account for the limited role of portfolio adjustment under market incompleteness and the separate contributions of excess returns and capital gains.",
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