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Net foreign asset positions and consumption dynamics in the international economy

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  • Ghironi, Fabio
  • Iscan, Talan B.
  • Rebucci, Alessandro

Abstract

We examine the effect of non-zero, steady-state foreign assets on consumption dynamics in response to productivity shocks in a two-country, dynamic, general equilibrium model. The model generates non-zero steady-state net foreign assets by allowing for different discount factors across countries. As a consequence of discounting differences, individual steady-state consumption profiles are tilted upward or downward. Worldwide shocks to long-run productivity levels lead to dynamics that are absent in standard, symmetric models with equal discount factors. We then compare the model results to those of a VAR in common trend representation for the U.S. versus the rest of the G7. In the data, we find that permanent worldwide productivity shocks lead to net foreign asset and consumption dynamics that are broadly consistent with interpreting the U.S. as the relatively impatient model economy and are not consistent with symmetric models with equal discount factors.

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  • Ghironi, Fabio & Iscan, Talan B. & Rebucci, Alessandro, 2008. "Net foreign asset positions and consumption dynamics in the international economy," Journal of International Money and Finance, Elsevier, vol. 27(8), pages 1337-1359, December.
  • Handle: RePEc:eee:jimfin:v:27:y:2008:i:8:p:1337-1359
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    Cited by:

    1. Schön, Matthias & Stähler, Nikolai, 2020. "When old meets young? Germany's population ageing and the current account," Economic Modelling, Elsevier, vol. 89(C), pages 315-336.
    2. Eleni Iliopulos & Thepthida Sopraseuth, 2012. "L'intermédiation financière dans l'analyse macroéconomique : le défi de la crise," Économie et Statistique, Programme National Persée, vol. 451(1), pages 91-130.
    3. Gourinchas, Pierre-Olivier & Rey, Hélène, 2014. "External Adjustment, Global Imbalances, Valuation Effects," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.),Handbook of International Economics, edition 1, volume 4, chapter 0, pages 585-645, Elsevier.
    4. Talan B. Işcan, 2008. "Productivity Growth and the Future of the U.S. Saving Rate," Working Papers daleconwp2009-02, Dalhousie University, Department of Economics.
    5. İşcan, Talan B., 2011. "Productivity growth and the U.S. saving rate," Economic Modelling, Elsevier, vol. 28(1), pages 501-514.
    6. Eleni Iliopulos & Thepthida Sopraseuth, 2012. "L'intermédiation financière dans l'analyse macroéconomique : le défi de la crise," Économie et Statistique, Programme National Persée, vol. 451(1), pages 91-130.
    7. Auer, Simone, 2019. "Monetary policy shocks and foreign investment income: Evidence from a large Bayesian VAR," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 142-166.
    8. Braeu, Rebecca, 2010. "Consumption tilting and the current account: Evidence from Canada," International Review of Economics & Finance, Elsevier, vol. 19(2), pages 304-312, April.
    9. Chia, W.M. & Jinjarak, Y. & Rana, P. & Xie, T., 2014. "Net foreign assets and macroeconomic volatility," Journal of Asian Economics, Elsevier, vol. 34(C), pages 42-53.
    10. repec:hal:psewpa:halshs-00744047 is not listed on IDEAS
    11. Boileau, Martin & Normandin, Michel & Powo Fosso, Bruno, 2010. "Global versus country-specific shocks and international business cycles," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 1-16, March.
    12. Bee Yan Aw & Yi Lee & Hylke Vandenbussche, 2018. "Decomposing firm-product appeal:How important is consumer taste ?," Working Paper Research 337, National Bank of Belgium.
    13. Luigi Bonatti & Andrea Fracasso, 2009. "The evolution of the Sino-American Co-dependency: modelling a regime switch in a growth setting," Department of Economics Working Papers 0905, Department of Economics, University of Trento, Italia.
    14. Gourinchas, Pierre-Olivier & Rey, Hélène, 2013. "External Adjustment, Global Imbalances and Valuation Effects," CEPR Discussion Papers 9566, C.E.P.R. Discussion Papers.
    15. Ghironi, Fabio, 2008. "The role of net foreign assets in a New Keynesian small open economy model," Journal of Economic Dynamics and Control, Elsevier, vol. 32(6), pages 1780-1811, June.
    16. Luigi Bonatti & Andrea Fracasso, 2016. "Modelling The Transition Towards The Renminbi'S Full Convertibility: Implications For China'S Growth," Bulletin of Economic Research, Wiley Blackwell, vol. 68(S1), pages 146-170, December.
    17. Bonatti, Luigi & Fracasso, Andrea, 2013. "Regime switches in the Sino-American co-dependency: Growth and structural change in China," Structural Change and Economic Dynamics, Elsevier, vol. 25(C), pages 1-32.
    18. Luigi Bonatti & Andrea Fracasso, 2012. "The costs of rebalancing the China-US co-dependency," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 120(1), pages 59-106.
    19. Turnovsky, Stephen J., 2019. "Demographic structures, savings, and international capital flows," Journal of International Money and Finance, Elsevier, vol. 98(C), pages 1-1.

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