Net Foreign Asset Positions and Consumption Dynamics in the International Economy

35 Pages Posted: 21 Oct 2019

See all articles by Fabio Pietro Ghironi

Fabio Pietro Ghironi

University of Washington

Talan Iscan

Dalhousie University - Department of Economics

Alessandro Rebucci

Johns Hopkins University - Carey Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: August 13, 2007

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.

Keywords: Net foreign assets, Consumption, Consumption tilting, Productivity

JEL Classification: F41, C33

Suggested Citation

Ghironi, Fabio Pietro and Iscan, Talan and Rebucci, Alessandro, Net Foreign Asset Positions and Consumption Dynamics in the International Economy (August 13, 2007). Journal of International Money and Finance, Vol. 27, No. 8, 2008, Available at SSRN: https://ssrn.com/abstract=3407984

Fabio Pietro Ghironi

University of Washington ( email )

Department of Economics
Box 353330
Seattle, WA 98195-3330
United States
206-543-5795 (Phone)

HOME PAGE: http://faculty.washington.edu/ghiro

Talan Iscan

Dalhousie University - Department of Economics ( email )

Halifax, Nova Scotia B3H 3J5
Canada
902-494-6994 (Phone)
902-494-6917 (Fax)

Alessandro Rebucci (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://carey.jhu.edu/faculty-research/faculty-directory/alessandro-rebucci-phd

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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