International Risk-Taking, Volatility, and Consumption Growth

64 Pages Posted: 17 Dec 2006

See all articles by Maria Giduskova

Maria Giduskova

Federal Reserve Bank of Boston

Borja Larrain

Pontificia Universidad Catolica de Chile

Date Written: November 2006

Abstract

We show that countries that take on more international risk are rewarded with higher expected consumption growth. International risk is defined as the beta of a country's consumption growth with world consumption growth. High-beta countries hold more foreign assets, as predicted by the theory. Despite the positive effects of beta, a country's idiosyncratic volatility is negatively correlated with expected consumption growth. Therefore, uninsured shocks affect not only current growth, but also future consumption growth. High-volatility countries have worse net foreign asset positions, suggesting that solvency constraints limit their future growth.

JEL Classification: E21, F3, G1, O16, O4

Suggested Citation

Giduskova, Maria and Larrain, Borja, International Risk-Taking, Volatility, and Consumption Growth (November 2006). FRB of Boston Working Paper No. 06-17. Available at SSRN: https://ssrn.com/abstract=951749 or http://dx.doi.org/10.2139/ssrn.951749

Maria Giduskova (Contact Author)

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Borja Larrain

Pontificia Universidad Catolica de Chile ( email )

Ave. Vicuna Mackenna 4860, Macul
Santiago
Chile

HOME PAGE: http://economiayadministracion.uc.cl/personal/blarrain/

Register to save articles to
your library

Register

Paper statistics

Downloads
58
Abstract Views
684
rank
362,921
PlumX Metrics