Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/317073 
Year of Publication: 
2023
Citation: 
[Journal:] Open Economies Review [ISSN:] 1573-708X [Volume:] 35 [Issue:] 2 [Publisher:] Springer US [Place:] New York [Year:] 2023 [Pages:] 363-394
Publisher: 
Springer US, New York
Abstract: 
Abstract We present a comprehensive analysis of the shock absorption role of external positions using the currency exposures dataset by Bénétrix et al. ( 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.
Subjects: 
Currency composition
International investment position
Foreign currency exposures
Valuation effects
Global imbalances
Persistent Identifier of the first edition: 
Additional Information: 
F21;F31;F32;F41
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version
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