What Drives US Foreign Borrowing? Evidence on the External Adjustment to Transitory and Permanent Shocks
The joint dynamics of US net output, consumption, and (the market value of) foreign assets and liabilities, characterized empirically following Lettau and Ludvigson (2004), is shown to be consistent with current account theory. US consumption is virtually insulated from transitory shocks, while these contribute to variations in net output and gross foreign positions--consumption is smoothed against temporary fluctuations in returns. A single permanent shock--naturally interpreted as a supply shock--raises consumption swiftly while causing net output to adjust gradually. This leads to persistent, procyclical external deficits, while moving gross assets and liabilities in the same direction. (JEL E21, E23, F32, F34)
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 102 (2012)
Issue (Month): 2 (April)
|Contact details of provider:|| Web page: https://www.aeaweb.org/aer/|
More information through EDIRC
|Order Information:||Web: https://www.aeaweb.org/subscribe.html|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gonzalo, Jesus & Ng, Serena, 2001.
"A systematic framework for analyzing the dynamic effects of permanent and transitory shocks,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 25(10), pages 1527-1546, October.
- Gonzalo, J. & Ng, S., 1996. "A Systematic Framework for Analyzing the Dynamic Effects of Permanent and Transitory Shocks," Cahiers de recherche 9603, Universite de Montreal, Departement de sciences economiques.
- Ng, Serena & Gonzalo, Jesús, 1996. "A systematic framework for analyzing the dynamic effects of permanent and transitory shocks," DES - Working Papers. Statistics and Econometrics. WS 6203, Universidad Carlos III de Madrid. Departamento de Estadística.
- Gonzalo, J. & Ng, S., 1996. "A Systematic Framework for Analyzing the Dynamic Effects of Permanent and Transitory Shocks," Cahiers de recherche 9603, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Backus, David K. & Smith, Gregor W., 1993. "Consumption and real exchange rates in dynamic economies with non-traded goods," Journal of International Economics, Elsevier, vol. 35(3-4), pages 297-316, November.
- David K. Backus & Gregor W. Smith, 1993. "Consumption and Real Exchange Rates in Dynamic Economies with Non-Traded Goods," Working Papers 1252, Queen's University, Department of Economics.
- Sheffrin, Steven M. & Woo, Wing Thye, 1990. "Present value tests of an intertemporal model of the current account," Journal of International Economics, Elsevier, vol. 29(3-4), pages 237-253, November.
- Sheffrin, S.M. & Woo, W.T., 1989. "Present Value Tests Of An Intertemporal Model Of The Current Account," Papers 61, California Davis - Institute of Governmental Affairs.
- Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
- Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-276, March.
- Ayhan Kose, M. & Otrok, Christopher & Whiteman, Charles H., 2008. "Understanding the evolution of world business cycles," Journal of International Economics, Elsevier, vol. 75(1), pages 110-130, May.
- Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2005. "Understanding the Evolution of World Business Cycles," IMF Working Papers 05/211, International Monetary Fund.
- M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September.
- Aart Kraay & Jaume Ventura, 2000. "Current Accounts in Debtor and Creditor Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 115(4), pages 1137-1166.
- Kraay, Aart*Ventura, Jaume, 1997. "Current accounts in debtor and creditor countries," Policy Research Working Paper Series 1825, The World Bank.
- Kraay, A. & Ventura, J., 1997. "Current Acounts in Debtor and Creditor Countries," Working papers 97-12, Massachusetts Institute of Technology (MIT), Department of Economics.
- Palumbo, Michael & Rudd, Jeremy & Whelan, Karl, 2006. "On the Relationships Between Real Consumption, Income, and Wealth," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 1-11, January.
- Karl Whelan & Michael Palumbo & Jeremy Rudd, 2002. "On the relationships between real consumption, income, and wealth," Open Access publications 10197/241, School of Economics, University College Dublin.
- Michael G. Palumbo & Jeremy B. Rudd & Karl Whelan, 2002. "On the relationships between real consumption, income and wealth," Finance and Economics Discussion Series 2002-38, Board of Governors of the Federal Reserve System (U.S.).
- Palumbo, Michael & Rudd, Jeremy & Whelan, Karl, 2002. "On the Relationships Between Real Consumption, Income, and Wealth," Research Technical Papers 4/RT/02, Central Bank of Ireland.
- John Campbell & Angus Deaton, 1989. "Why is Consumption So Smooth?," Review of Economic Studies, Oxford University Press, vol. 56(3), pages 357-373.
- Campbell, John & Deaton, Angus, 1989. "Why Is Consumption So Smooth?," Scholarly Articles 3221494, Harvard University Department of Economics.
- Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, July.
- Hoffman, Mathias, 2001. "The Relative Dynamics of Investment and the Current Account in the G7-Economies," Economic Journal, Royal Economic Society, vol. 111(471), pages 148-163, May.
- Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, April.
- Ghosh, Atish R, 1995. "International Capital Mobility amongst the Major Industrialised Countries: Too Little or Too Much?," Economic Journal, Royal Economic Society, vol. 105(428), pages 107-128, January.
- Mathias Hoffmann, 2003. "International macroeconomic fluctuations and the current account," Canadian Journal of Economics, Canadian Economics Association, vol. 36(2), pages 401-420, May.
- Hoffmann, Mathias, 1999. "International macroeconomic fluctuations and the current account," Discussion Paper Series In Economics And Econometrics 9915, Economics Division, School of Social Sciences, University of Southampton.