English, Article, Journal or magazine article edition: Could capital gains smooth a current account rebalancing? Cedric Tille; Michele Cavallo; Cédric Tille

User activity

Share to:
 
Bookmark: http://trove.nla.gov.au/version/30475
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Could capital gains smooth a current account rebalancing?
Author
  • Cedric Tille
  • Michele Cavallo
  • Cédric Tille
Physical Description
  • preprint
Notes
  • current account, exchange rates, global imbalances
  • RePEc:red:sed006:252
  • A narrowing of the U.S. current account deficit through exchange rate movements is likely to entail a substantial depreciation of the dollar, as stressed in research by Obstfeld and Rogoff. We assess how the adjustment is affected by the high degree of financial integration in the world economy. A growing body of research emphasizes the increasing leverage in international financial positions, with industrialized economies holding substantial and growing financial claims on each other. Exchange rate movements then lead to valuation effects as the currency composition of a country's assets and liabilities are not matched. In particular, a dollar depreciation generates valuation gains for the United States by boosting the dollar value of much of its foreign-currency-denominated assets. We consider an adjustment scenario in which the U.S. net external debt is held constant. The key finding is that as the current account moves into balance, the pace of adjustment is smooth. Intuitively, the valuation gains from the depreciation of the dollar allow the United States to finance ongoing, albeit shrinking, current account deficits. We find that the smooth pattern of adjustment is robust to alternative scenarios, although the ultimate movements in exchange rates will vary under different conditions.
  • International finance ; Foreign exchange ; Dollar, American
  • RePEc:fip:fednsr:237
  • A narrowing of the U.S. current account deficit through exchange rate movements is likely to entail a substantial depreciation of the dollar, as stressed in the widely cited contribution by Obstfeld and Rogoff (2005). We assess how the adjustment is affected by the high degree of international financial integration in the world economy. A growing body of research stresses the increasing leverage in international financial positions, with industrialized economies holding substantial and growing financial claims on each other. Exchange rate movements then leads to valuations effects as the currency compositions of a country's assets and liabilities are not matched. In particular, a dollar depreciation generates valuation gains for the U.S. by boosting the dollar value of the large amount of its foreign-currency denominated assets. We consider an adjustment scenario in which the U.S. net external debt is held constant. The key finding is that while the current account moves into balance, the pace of adjustment is smooth. Intuitively, the valuation gains stemming from the depreciation of the dollar allow the U.S. to finance ongoing, albeit shrinking, current account deficits. We find that the smooth pattern of adjustment is robust to alternative scenarios, although the ultimate movements in exchange rates are affected.
  • Balance of trade ; Foreign exchange rates
  • RePEc:fip:fedfwp:2006-03
Language
  • English
Contributed by
OAIster

Get this edition

  • Set up My libraries

    How do I set up "My libraries"?

    In order to set up a list of libraries that you have access to, you must first login or sign up. Then set up a personal list of libraries from your profile page by clicking on your user name at the top right of any screen.

  • All (1)
  • Unknown (1)
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.

User activity


e.g. test cricket, Perth (WA), "Parkes, Henry"

Separate different tags with a comma. To include a comma in your tag, surround the tag with double quotes.

Be the first to add a tag for this edition

Be the first to add this to a list

Comments and reviews

What are comments? Add a comment

No user comments or reviews for this version

Add a comment