Net Foreign Asset Positions and Consumption Dynamics in the International Economy

International Monetary Fund

No 2005/082, IMF Working Papers from International Monetary Fund

Abstract: We examine the effect of non-zero, long-run foreign asset positions on consumption dynamics in response to productivity shocks in a two-country, dynamic, general equilibrium model, with different discount factors across countries populated by overlapping generations of households. We then compare the model results to those of a VAR for the United States versus the rest of the G-7. In the data, we find that permanent worldwide productivity shocks lead to net foreign asset and consumption dynamics that are consistent with interpreting the United States as the impatient economy in our model and are not consistent with symmetric models with equal discount factors.

Keywords: WP; mover accent; steady state; Net foreign assets; consumption; consumption tilting; productivity; productivity shock; consumption profile; steady-state productivity differential; productivity level; Foreign assets; Real wages; Global; impulse response; benchmark solution (search for similar items in EconPapers)
Pages: 33
Date: 2005-04-01
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Citations: View citations in EconPapers (18)

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