Stocks, Flows and Valuation Effects of Foreign Assets and Liabilities: Do They Matter?

Large holdings of foreign assets and liabilities, along with increasing relevance of valuation effects—capital gains or losses—have characterized global financial integration. In this paper, we assess empirically the implications of stocks, flows and valuation adjustments in external crises (current-account reversals, sudden stops and currency crises), sovereign credit ratings and the longrun real exchange rates (RER), in both industrial and developing economies. We find support for the view that foreign assets and liabilities are rather distinctive external holdings with different implications in the occurrence of external crisis. Valuation adjustments have an impact on crises, although quantitatively not very large. Portfolio liabilities (particularly equity) increase the probability of current-account reversals and currency crises, while the likelihood of sudden stops increases with the stock of foreign direct investment (FDI) assets. In the case of sovereign credit ratings, we find a noteworthy effect of the stock and flows of FDI liabilities on improving sovereign ratings. Finally, as for the RER, gross assets and liabilities appear equally important, but components of external holdings have considerably different effects. While the cumulative current account is associated with real depreciation, the valuation effect is strongly linked with real currency appreciations in developing economies.

Speculative Currency Attacks: Role of Inconsistent Macroeconomic Policies and Real Exchange Rate Overvaluation

This paper provides a critical analysis of Kaminsky and Reinhart (1999) (KR), perhaps the most prominent empirical paper on causes of currency crises. After dealing with problems present in this paper, it proposes an aggregate leading indicator of crisis. The proposed indicator performs better than a composite index based on the best six individual indicators of KR, both in terms of accuracy and predictive capacity, and represents a unified version of the currency crises approach that emphasizes the role of inconsistent macroeconomic policies as an explanation of currency crises, and the approach that emphasizes the role of tradeoffs among policymakers decisions as the main cause of these crises. Variables included in the proposed leading indicator are: the deviation of the actual stock of international reserves from an estimated demand for international reserves; the real growth of domestic credit; the ratio of domestic credit to M2; and the behavior of both the real exchange rate and industrial production as a measure of overvaluation of the real exchange rate.

Auge y caída de precios de commodities y su impacto sobre precios domésticos: Comparación internacional.

This paper compares domestic food, energy and core inflation in a sample of 44 countries during the recent commodities price boom-and-bust cycle, and explains differences across countries. In particular, it explores the role of structural and cyclical factors in explaining cross-country differences. Structural factors are essential in explaining cross-country differences in food and energy inflation. Differences in both price levels and domestic price regulations are key and significant. About half of the difference between the increase in domestic food prices in Chile from 2007 to 2008, and the average food inflation for the whole sample of countries, was explained by these factors. Even though the unexplained component of food and energy inflation in Chile is positive and greater than that of other countries during the boom, actual core inflation was less than expected inflation using the model. This is evidence contrary to the de-anchoring of inflation expectations hypothesis.

Stocks, Flows and Valuation Effects of Foreign Assets and Liabilities: Do they Matter?

During the last few years, large holdings of foreign assets and liabilities along with an increasing relevance of the valuation effects—capital gains or losses—have characterized global financial integration. This paper presents an empirical assessment of the implications of stocks, flows and valuation adjustments in external crises, sovereign credit ratings and the long-run dynamics of real exchange rates (RER), in both industrial and developing economies. We find that foreign assets and liabilities are rather distinctive external holdings with different implications in the occurrence of an external crisis. Valuation adjustments have an impact on crises, although quantitatively not very large. Portfolio liabilities (particularly equity) increase the probability of current account reversals, while the likelihood of sudden stops increases with foreign direct investment assets. In the case of sovereign credit ratings, we find a noteworthy effect of the stock and flows of FDI liabilities on improvin sovereign ratings. Finally, as for the RER, gross assets and liabilities appear equally important, but components of external holdings have considerably different effects. While the cumulative current account is associated with real depreciation, the valuation effect is strongly linked with real currency appreciations in developing economies.

Covid-19 and the role of smoking: the protocol of the multicentric prospective study COSMO-IT (COvid19 and SMOking in ITaly).

The emergency caused by Covid-19 pandemic raised interest in studying lifestyles and comorbidities as important determinants of poor Covid-19 prognosis. Data on tobacco smoking, alcohol consumption and obesity are still limited, while no data are available on the role of e-cigarettes and heated tobacco products (HTP). To clarify the role of tobacco smoking and other lifestyle habits on COVID-19 severity and progression, we designed a longitudinal observational study titled COvid19 and SMOking in ITaly (COSMO-IT). About 30 Italian hospitals in North, Centre and South of Italy joined the study. Its main aims are: 1) to quantify the role of tobacco smoking and smoking cessation on the severity and progression of COVID-19 in hospitalized patients; 2) to compare smoking prevalence and severity of the disease in relation to smoking in hospitalized COVID-19 patients versus patients treated at home; 3) to quantify the association between other lifestyle factors, such as e-cigarette and HTP use, alcohol and obesity and the risk of unfavourable COVID-19 outcomes. Socio-demographic, lifestyle and medical history information will be gathered for around 3000 hospitalized and 700-1000 home-isolated, laboratory-confirmed, COVID-19 patients. Given the current absence of a vaccine against SARS-COV-2 and the lack of a specific treatment for -COVID-19, prevention strategies are of extreme importance. This project, designed to highly contribute to the international scientific debate on the role of avoidable lifestyle habits on COVID-19 severity, will provide valuable epidemiological data in order to support important recommendations to prevent COVID-19 incidence, progression and mortality