Archive
The shock absorbing role of cross-border investments: net positions versus currency composition
Joint work with Beren Demirölmez and Martin Schmitz
Abstract: We present a comprehensive analysis of the shock absorption role of external positions using the currency exposures dataset by Bénétrix, Gautam, Juvenal, and Schmitz (2020). While the literature has frequently studied how the net international investment position and its currency composition determine the direction and scale of valuation effects, we focus on their amplitude. This is of central importance for global financial stability given the large and increasing scale of external balance sheets. To that end, we propose an indicator showing the extent to which external positions absorb or amplify exchange rate shocks. Analysing a set of 50 countries over the period 1990-2017, we find the external shock absorption role to be present for advanced economies, while this was initially not the case for emerging markets economies (EMEs). In recent years, however, EMEs’ external positions increasingly showed a shock absorption capacity. Our regression-based analysis reveals that the level of economic and financial development is associated with a greater capacity to absorb exchange rate shocks.
Cross-Border Currency Exposures. New evidence based on an enhanced and updated dataset
Joint work with Deepali Gautam, Luciana Juvenal and Martin Schmitz.
Abstract: This paper provides a dataset on the currency composition of the international investment position for a group of 50 countries for the period 1990-2017. It improves available data based on estimates by incorporating actual data reported by statistical authorities and refining estimation methods. The paper illustrates current and new uses of these data, with particular focus on the evolution of currency exposures of cross-border positions.
- Download options: Trinity College Dublin, ECB, IMF
- Data file
Cross-country Exposures to the Swiss Franc
This is joint work with Philip Lane published as a book chapter in International Currency Exposure, Edited by Yin-Wong Cheung and Frank Westermann MIT Press, 2017.
Abstract: This paper first documents the foreign currency exposures of Switzerland in the 2002-2012 period. We find that the large scale of the Swiss international balance sheet means that movements in the Swiss Franc generate large cross-border valuation effects. Second, we examine the Swiss Franc holdings of the rest of the world and highlight differences in exposures between advanced and emerging economies.
International Currency Exposures, Valuation Effects and the Global Financial Crisis
This is joint work with Philip Lane and Jay Shambaugh and published in the Journal of International Economics, 96: 98-109, January 2015
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.
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Agustín Bénétrix 