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Macroeconomic volatility and external imbalances

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  • Fogli, Alessandra
  • Perri, Fabrizio

Abstract

Does macroeconomic volatility/uncertainty affects accumulation of net foreign assets? In OECD economies over the period 1970–2012, changes in country specific aggregate volatility are, after controlling for a wide array of factors, significantly positively associated with net foreign asset position. A standard open economy model with time varying macroeconomic uncertainty can quantitatively account for this relationship. The key mechanism is precautionary motive: more uncertainty induces residents to save more, and higher savings are in part channeled into foreign assets. Data and theory suggest that volatility is an important determinant of the medium/long run evolution of external imbalances in developed countries.

Suggested Citation

  • Fogli, Alessandra & Perri, Fabrizio, 2015. "Macroeconomic volatility and external imbalances," Journal of Monetary Economics, Elsevier, vol. 69(C), pages 1-15.
  • Handle: RePEc:eee:moneco:v:69:y:2015:i:c:p:1-15
    DOI: 10.1016/j.jmoneco.2014.12.003
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    Cited by:

    1. Choi, Sangyup & Furceri, Davide, 2019. "Uncertainty and cross-border banking flows," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 260-274.
    2. Duncan, Roberto, 2016. "Does the US current account show a symmetric behavior over the business cycle?," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 202-219.
    3. repec:eee:inecon:v:117:y:2019:i:c:p:242-255 is not listed on IDEAS
    4. Samil Oh & Thepthida Sopraseuth, 2017. "Firm entry, Search and Matching in a Small Open Economy Faced with Uncertainty Shocks: The case of Korea," THEMA Working Papers 2017-27, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    5. repec:eee:inecon:v:111:y:2018:i:c:p:143-158 is not listed on IDEAS
    6. De La Torre,Augusto & Ize,Alain, 2015. "Should Latin America save more to grow faster ?," Policy Research Working Paper Series 7386, The World Bank.
    7. Joshua Aizenman & Eduardo Cavallo & Ilan Noy, 2015. "Precautionary Strategies and Household Saving," Open Economies Review, Springer, vol. 26(5), pages 911-939, November.
    8. Jaccard, Ivan & Smets, Frank, 2017. "Structural asymmetries and financial imbalances in the eurozone," Working Paper Series 2076, European Central Bank.
    9. repec:red:issued:16-198 is not listed on IDEAS
    10. Hoffmann, Mathias & Krause, Michael & Tillmann, Peter, 2019. "International capital flows, external assets and output volatility," Journal of International Economics, Elsevier, vol. 117(C), pages 242-255.
    11. Florian Morvillier, 2018. "On the impact of the launch of the euro on EMU macroeconomic vulnerability," EconomiX Working Papers 2018-51, University of Paris Nanterre, EconomiX.
    12. Ivan Jaccard, 2019. "Structural Asymmetries and Financial Imbalances," 2019 Meeting Papers 988, Society for Economic Dynamics.
    13. Ekaterina Pirozhkova, 2017. "Bank loan components, uncertainty and monetary transmission mechanism," BCAM Working Papers 1702, Birkbeck Centre for Applied Macroeconomics.
    14. Joseph Steinberg, 2019. "On the Source of U.S. Trade Deficits: Global Saving Glut or Domestic Saving Drought?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 200-223, January.
    15. Hochmuth, Brigitte & Moyen, Stephane & Stähler, Nikolai, 2019. "Labor market reforms, precautionary savings, and global imbalances," Discussion Papers 13/2019, Deutsche Bundesbank.
    16. Yang Liu & Mariano Croce & Ivan Shaliastovich & Ric Colacito, 2016. "Volatility Risk Pass-Through," 2016 Meeting Papers 135, Society for Economic Dynamics.

    More about this item

    Keywords

    Business cycles; Current account; Global imbalances; Precautionary saving; Uncertainty;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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