| Under the background of economic and financial integration, the phenomenon of external imbalances has become increasingly serious. NIIP, or the Net International Investment Position, is a good index to measure external assets and liabilities of a country, and can be the supplement to balance of payment account. Among the influencing factors of NIIP, the valuation effect means the stock change of NIIP that caused by the fluctuation of exchange rates, prices of external assets and liabilities. The positive valuation effect can help to improve the NIIP and accumulate national external wealth, whereas the negative one can make a loss of domestic resources.The European sovereign debt crisis which began at the end of 2009 has deteriorated the NIIP of several Eurozone countries. During the crisis, the volatile change of real effective exchange rate and the fluctuation of prices of external assets and liabilities have made the influence of valuation effect on the NIIP much more complex. Therefore, this paper will generally analyze the influence of valuation effect to the NIIP. First of all, the paper demonstrates the background and necessity of doing the research. In the main part, the paper theoretically analyzes the framework of NIIP and the elements of valuation effect, showing that the change of NIIP includes current account channel and valuation effect channel, and the valuation effect channel includes the change of exchange rate, portfolios adjustment and excess returns of external assets and liabilities. Then the paper observes the influence of valuation effect on NIIP for some Eurozone countries before and after the crisis. For the peripheral countries, the NIIP deteriorates and the valuation effect is smoothing but still negative; for those in the core area, the NIIP varies but the valuation effects do not make a big difference. Furthermore, the empirical model which includes measures of restricted co-integration and VECM is established to identify that these observations are right and also find that the valuation effect dominates in the short-term. At last, this paper gives some policies and recommendations for the improvement of NIIP and external rebalance, along with some lessons and experience for China’s external management of exchange rate and foreign currency reserves. |
