Working Paper: CEPR ID: DP10325
Authors: AgustÃn Benetrix; Philip R. Lane; Jay C. Shambaugh
Abstract: We examine the evolution of international currency exposures, with a particular focus on the 2002-12 period. During the run up to the global financial crisis, there was a widespread shift towards positive net foreign currency positions, such that relatively few countries exhibited the archetypal emerging-market ?short foreign currency? position on the eve of the global financial crisis. During the crisis, the upheaval in currency markets generated substantial currency-generated valuation effects - much of which were not reversed. There is some evidence that the distribution of valuation effects was stabilizing in the sense of showing a negative covariation pattern with pre-crisis net foreign asset positions.
Keywords: global financial crisis; international currency exposures; valuation effects
JEL Codes: F30; F31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Improved net foreign currency positions (F31) | Better ability to absorb shocks from currency depreciation (F31) |
| Positive net foreign currency position (F31) | Tolerate currency depreciations without significant negative impacts on balance sheets (F31) |
| Currency movements (F31) | Valuation effects (D46) |
| Valuation effects (D46) | Correcting external imbalances (F32) |
| Currency movements (F31) | Domestic output (E23) |
| Currency movements (F31) | Financial stability (G28) |