Download or read book The Valuation Channel of External Adjustment written by Mr.Fabio Ghironi and published by International Monetary Fund. This book was released on 2009-12-01 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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. We examine this valuation channel in a dynamic equilibrium portfolio model with international trade in equity. By separating asset prices and quantities, we can characterize the first-order dynamics of valuation effects and the current account in macroeconomic dynamics. Specifically, we disentangle the roles of excess returns, capital gains, and portfolio adjustment for consumption risk sharing when financial markets are incomplete.