Macroeconomic Volatility and External Imbalances / Alessandra Fogli, Fabrizio Perri.

Format:

Book

Author/Creator:

Fogli, Alessandra.

Contributor:

National Bureau of Economic Research.

Perri, Fabrizio.

Series:

Working Paper Series (National Bureau of Economic Research) no. w20872.

NBER working paper series no. w20872

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

Does macroeconomic volatility/uncertainty affects accumulation of net foreign assets? In OECD economies over the period 1970-2012, changes in country specific aggregate volatility are, after controlling for a wide array of factors, significantly positively associated with net foreign asset position. An increase in volatility (measured as the standard deviation of GDP growth) of 0.5% over period of 10 years is associated with an increase in the net foreign assets of around 8% of GDP. A standard open economy model with time varying aggregate uncertainty can quantitatively account for this relationship. The key mechanism is precautionary motive: more uncertainty induces residents to save more, and higher savings are in part channeled into foreign assets. We conclude that both data and theory suggest uncertainty/volatility is an important determinant of the medium/long run evolution of external imbalances in developed countries.

Notes:

Print version record

January 2015.