Macroeconomic volatility and external imbalances

Alessandra Fogli and Fabrizio Perri

Journal of Monetary Economics, 2015, vol. 69, issue C, 1-15

Abstract: 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. A standard open economy model with time varying macroeconomic 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. Data and theory suggest that volatility is an important determinant of the medium/long run evolution of external imbalances in developed countries.

Keywords: Business cycles; Current account; Global imbalances; Precautionary saving; Uncertainty (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (47)

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Working Paper: Macroeconomic Volatility and External Imbalances (2015)
Working Paper: Macroeconomic Volatility and External Imbalances (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:69:y:2015:i:c:p:1-15

DOI: 10.1016/j.jmoneco.2014.12.003

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