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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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
Contact details of provider:
Web page: http://www.uom.gr/index.php?tmima=3
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 Macroeconomic)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Jacob, Punnoose & Peersman, Gert, 2013.
"Dissecting the dynamics of the US trade balance in an estimated equilibrium model,"
Reserve Bank of New Zealand Discussion Paper Series
DP2013/04, Reserve Bank of New Zealand.
- Jacob, Punnoose & Peersman, Gert, 2013. "Dissecting the dynamics of the US trade balance in an estimated equilibrium model," Journal of International Economics, Elsevier, vol. 90(2), pages 302-315.
- P. Jacob & G. Peersman, 2008. "Dissecting the Dynamics of the US Trade Balance in an Estimated Equilibrium Model," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 08/544, Ghent University, Faculty of Economics and Business Administration.
- Punnoose Jacob & Gert Peersman, 2012. "Dissecting the dynamics of the US trade balance in an estimated equilibrium model," Working Paper Research 226, National Bank of Belgium.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Theodore Panagiotidis).
If references are entirely missing, you can add them using this form.