Papers
Abstract: This paper investigates the role of valuation effects on a country's net foreign asset position. It shows that following transitory shocks, valuation effects are stabilizing; they counteract current account movements and mitigate the impact of the current account on net foreign assets. Following trend shocks, valuation effects are amplifying; they move in the same direction as the current account and reinforce the impact of the current account on net foreign assets. The results are illustrated by the external imbalances between the U.S. and other industrialized countries since the 1990s.
Abstract: This paper investigates analytically valuation effects and their determinants. It shows that valuation effects are stabilizing in response to transitory output shocks. They move in the opposite direction of the current account and mitigate the impact of the current account on the net foreign asset position. The size of valuation effects relative to the current account is positively related to the level of cross-country portfolio holdings, which in turn increases with risk aversion, with output volatility, with output persistence, and decreases with the discount factor and with financial frictions. When investors hold 40% or more of their financial wealth in foreign equity, valuation effects will completely offset the current account. This paper also shows that the size of expected valuation effects relative to unexpected valuation effects decreases with output persistence.
Abstract: In a dynamic stochastic general equilibrium (DSGE) two-country model with both transitory and growth shocks, I examine the roles of bonds and equities in cross country and inter-temporal consumption smoothing. I compare welfare in four scenarios (1) autarky (2) agents can trade bonds only (3) agents can trade equities only and (4) complete markets. I find that with the incorporation of growth shocks, welfare differentials are substantially larger than those reported by previous studies.
Others:
Why do tradable firms borrow too little in dollars ? PDF , mimeo, University of Maryland, 2008
Abstract: I develop a simple stochastic general equilibrium model with sticky prices and wages to explain financial dollarization in emerging markets. I argue that both lending and liability dollarization are optimal currency portfolio choices to insure against exchange rate risk. In equilibrium, tradable firms borrow entirely in dollars (full dollarization) and lend in pesos, while non-tradable firms choose to borrow partially in pesos to hedge against their relative income declines in devaluations. However, tradable firms in practice only borrow a small fraction in dollars. I suggest that it might be due to motives to insure against income transfers (from tradable to non-tradable firms) in devaluation episodes.
Macroeconomic Impacts of Droughts and Rainfall Fluctuations in Sub-Saharan Africa , PDF Report, Summer Project at the IMF, 2007
Environmental Preferences and Long Run Growth, PDF mimeo, University of Adelaide, 2003