Back to Search
Start Over
Macroeconomic Volatility and External Imbalances.
- Source :
- Research Department Staff Reports (Federal Reserve Bank of Minneapolis); May2015, Issue 512, p1-33, 33p
- Publication Year :
- 2015
-
Abstract
- Does macroeconomic volatility/uncertainty affect 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. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- Issue :
- 512
- Database :
- Complementary Index
- Journal :
- Research Department Staff Reports (Federal Reserve Bank of Minneapolis)
- Publication Type :
- Academic Journal
- Accession number :
- 108486264
- Full Text :
- https://doi.org/10.1016/j.jmoneco.2014.11.005