Abstract
The PVAR model is constructed based on the international panel data of 1991-2014. This paper aims to study the different characteristics of the fluctuation of valuation effects in developed market countries and emerging market countries. The variance decomposition found that the valuation effects fluctuation of emerging market countries was mainly caused by the equity balance index and exchange rate fluctuation, while valuation effects fluctuation of developed market countries was mainly caused by the stock returns and the structure of net foreign assets. Furthermore, the impulse response found that the policy of managing valuation effect by stock return rate of emerging market countries can only be effective in the short term and long-term turned invalid. Policy of improving the equity balance index to manage valuation effects fluctuation is more effective in the emerging market countries than in the developed market countries.
Highlights
Introduction and Literature ReviewThe conventional inter temporal model shows that a country’s external balance is mainly adjusted by the trade channel and foreign net assets position is equal to the accumulated value of current accounts
The variance decomposition found that the valuation effects fluctuation of emerging market countries was mainly caused by the equity balance index and exchange rate fluctuation, while valuation effects fluctuation of developed market countries was mainly caused by the stock returns and the structure of net foreign assets
The first phase valuation effects can explain the 89.4% fluctuation of its own, the stock return rate R and equity balance index AL can respectively explain 6.6% and 4%, but the exchange rate does not explain; In the medium and long-term, in addition to valuation effects’ own interpretation, the interpretation of the fluctuation of valuation effects of AL is higher than R, respectively, 9.7% to 11.3% and 12% to 10.3%
Summary
The conventional inter temporal model shows that a country’s external balance is mainly adjusted by the trade channel and foreign net assets position is equal to the accumulated value of current accounts. With the deepening of international financial openness, the scale of the external stock assets of all countries is expanding It has been unable for the traditional cross period equilibrium theory to explain the huge gains or losses of the foreign net assets. The existence of valuation effects makes a country’s net foreign assets expose to unexpected change risk of exchange rate and asset price more. Under this background, studying the effect of valuation scale, structure and dynamic evolution has great significance on clarifying the adjustment mechanism of external balance
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