International finance and macroeconomics.

• Position: Bureau News

The NBER's Program on International Finance and Macroeconomics met in Cambridge on March 19. Richard K. Lyons, NBER and University of California, Berkeley, and Andres Velasco, NBER and Harvard University, organized this program:

Pierre-Olivier Gourinchas, NBER and University of California, Berkeley, and Helene Rey, NBER and Princeton University, "International Financial Adjustment" Discussant: Alan C. Stockman, NBER and University of Rochester

Christian Broda, Federal Reserve Bank of New York, and John Romalis, NBER and University of Chicago, "Identifying the Relationship Between Trade and Exchange Rate Volatility" Discussant: Eric Van Wincoop, NBER and University of Virginia

Fernando A. Broner, University of Maryland, "Discrete Devaluations and Multiple Equilibria in a First Generation Model of Currency Crises" Discussant: Roberto Chang, Rutgers University

Rui Albuquerque and Gregory H. Bauer, University of Rochester, and Martin Schneider, New York University, "International Equity Flows and Returns: A Quantitative Equilibrium Approach" Discussant: Linda Tesar, NBER and University of Michigan

Fabio Ghironi, Boston College, and Marc J. Melitz, NBER and Harvard University, "International Trade and Macroeconomic Dynamics with Heterogeneous Firms" Discussant: Paul Bergin, NBER and University of California, Davis

Ariel Burstein, University of California, Los Angeles, and Martin S. Eichenbaum and Sergio Rebelo, NBER and Northwestern University, "Large Devaluations and the Real Exchange Rate" Discussant: Carlos Vegh, NBER and University of California, Los Angeles

Gourinchas and Rey propose a framework for understanding the dynamics of net foreign assets and exchange rate movements. Focusing on the financial account and its determinants, they show that countries' capital gains and losses on net foreign assets constitute an important channel for external adjustment. For example, a depreciation of the domestic currency, or a drop in the domestic stock market index, improves the sustainability" of a country's external position by decreasing the value of its liabilities to foreigners. This theory implies that deviations from trend of the ratio of net exports to net foreign assets contain information about future portfolio returns and, possibly, future exchange rate changes. Using quarterly data on U.S. gross foreign positions and returns, the authors find that adjustments in the country's external position indeed occur mostly at short-to-medium...