Are valuation effects desirable from a global perspective?

Author / Creator

Benigno, Pierpaolo

Available as

Online

Summary

"Recent studies have emphasized the role of valuation effects exchange rate and price movements in easing the process of adjustment of the external balance of a country. This paper asks to what ext...

"Recent studies have emphasized the role of valuation effects exchange rate and price movements in easing the process of adjustment of the external balance of a country. This paper asks to what extent valuation effects are desirable from a global perspective as a mean to achieve an efficient allocation of resources. In a frictionless world, it is desirable to have large movements in prices and exchange rates. But once a small concern for price stability is introduced not only should prices be stabilized but also the response of the exchange rate should be muted. There is a minor role for valuation effects that depends both on the size and composition of assets and liabilities" National Bureau of Economic Research web site.

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