What Drives US Foreign Borrowing? Evidence on External Adjustment to Transitory and Permanent Shocks
AbstractThe joint dynamics of US net output, consumption, and (valuation-adjusted) foreign assets and liabilities, characterized empirically following Lettau and Ludvigson , is shown to be strikingly consistent with current account theory. While US consumption is virtually insulated from transitory shocks, these contribute considerably to the variation in net output and, even more so, in gross foreign positions, arguably smoothing temporary variations in returns. A single permanent shock – naturally interpreted as a productivity shock – raises consumption swiftly while causing net output to adjust only gradually. This leads to persistent, procyclical external deficits but, interestingly, moves gross assets and liabilities in the same direction.
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Bibliographic InfoPaper provided by Department of Economics, University of Macedonia in its series Discussion Paper Series with number 2009_03.
Date of creation: Jan 2009
Date of revision: Jan 2009
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Current Account; Net ForeignWealth; Consumption Smoothing; Intertemporal Approach to the Current Account; International Adjustment Mechanism; Permanent-Transitory Decomposition.;
Other versions of this item:
- Corsetti, Giancarlo & Konstantinou, Panagiotis T, 2009. "What Drives US Foreign Borrowing? Evidence on External Adjustment to Transitory and Permanent Shocks," CEPR Discussion Papers 7134, C.E.P.R. Discussion Papers.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-31 (All new papers)
- NEP-BEC-2009-01-31 (Business Economics)
- NEP-CBA-2009-01-31 (Central Banking)
- NEP-MAC-2009-01-31 (Macroeconomics)
- NEP-OPM-2009-01-31 (Open Economy Macroeconomics)
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