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International Monetary Fund. European Dept.

Big Acquisition, Small Accumulation: Why? 1 —A Look at Switzerland’s BOP-IIP Dynamics This paper identifies exchange rate revaluation losses and relatively low returns on foreign assets as key factors for the large gaps between Switzerland’s net foreign assets acquisitions and accumulations. It suggests a few directions that may help Switzerland reduce the gaps, including robust global diversification by Swiss investors that would also relieve appreciation pressures on the franc, improving the currency composition of foreign assets to reduce exchange rate

Ms. Celine Rochon, Mr. Andrew Feltenstein, and Maral Shamloo
This paper analyzes certain policies that are typical of a number of rapidly growing East Asian countries in which a fixed exchange rate, combined with a surplus labor market, has made domestic assets relatively inexpensive, generating high rates of FDI as well as domestic capital formation. This "investment hunger" can lead to unanticipated declines in the returns to investment, and resulting financial insolvencies. Private consumption remains low and there are concerns that high savings rates cannot be sustained. We construct a dynamic general equilibrium model and apply it to a stylized Asian economy, loosely based upon China. We calibrate a benchmark equilibrium, and carry out various counterfactual simulations to analyze alternative policies, in particular tax cuts and exchange rate revaluations, as instruments in increasing private consumption while avoiding bank failures.
Ms. Celine Rochon, Mr. Andrew Feltenstein, and Maral Shamloo

of leisure. Of course this new outcome is not sustainable, so we need to ask if it is possible to achieve similar welfare gains by policies other than exchange rate revaluations. 28 There are many such potential policies, and it is not possible to analytically solve for particular tax rates or spending levels that will give a particular welfare outcome. However, as a simple example of what could be accomplished by increasing consumption, we will impose a decrease in the personal income tax. The assumed effective tax rate on personal income was 5 percent in the

Mr. Rudy Wytenburg, Mr. Robin V Darbyshire, and Ms. Anjeza Beja

distributions are determined in accordance with the Bank of Utopia Act. Distributable profit is based on Profit or Loss as determined in accordance with IFRS (before Other Comprehensive Income) with the following adjustments: i) Deduct any unrealized foreign exchange rate revaluation gains or losses resulting in the year; ii) Add any amounts of unrealized foreign exchange rate revaluation gains or losses recorded in prior periods that have been realized in the year; iii) Allocate amounts to other reserves as required or allowed by the Bank of Utopia Act