Valuation effect as a determinant of the international investment position in Central and Eastern European economies

Authors

  • Konrad Sobański Poznań University of Economics

DOI:

https://doi.org/10.12775/EQUIL.2015.030

Keywords:

international finance, valuation effect, international investment position, Central and Eastern European economies

Abstract

The aim of this paper is to evaluate the significance of the valuation effect in determining the dynamics of the net international investment position of CEE economies. For this purpose an analysis of BoP and IIP time series for the four largest CEE economies (Poland, the Czech Republic, Hungary and Romania) for the years 2005-2013 was carried out. The exercise revealed that the valuation effect (VE) is, in the short run, the key determinant of net IIP changes (for most observed years). Nevertheless, in the long-run its influence decreases as valuation gains and losses tend to cancel each other out. As the VE is relatively volatile, it is important to analyse its dynamics over the mid and long-term when evaluating the IIP. The significance of the VE for determining net IIP dynamics turned out to be non-investment-type specific because valuations of both the short-term and long-term investments contributed in a large part to the change in the net IIP. Similarities in the dynamics of the VE in CEE countries prove that the VE depends to a large extent on the general price fluctuations in financial markets that nowadays exhibit strong correlations across countries.

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References

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Published

2015-09-30

How to Cite

Sobański, K. (2015). Valuation effect as a determinant of the international investment position in Central and Eastern European economies. Equilibrium. Quarterly Journal of Economics and Economic Policy, 10(3), 151-164. https://doi.org/10.12775/EQUIL.2015.030

Issue

Section

International economics: determinants of trade and capital flows