Net Foreign Asset Positions and Consumption Dynamics in the International Economy
IMF Working Papers, April 1, 2005
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- Net Foreign Asset Positions and Consumption Dynamics in the International Economy
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Bibliographic details
- Published: April 1, 2005
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451861013.001
Summary
- We examine the effect of non-zero, long-run foreign asset positions on consumption dynamics in response to productivity shocks in a two-country, dynamic, general equilibrium model, with different discount factors across countries populated by overlapping generations of households.
- We then compare the model results to those of a VAR for the United States versus the rest of the G-7.
- In the data, we find that permanent worldwide productivity shocks lead to net foreign asset and consumption dynamics that are consistent with interpreting the United States as the impatient economy in our model and are not consistent with symmetric models with equal discount factors.
Model and Methods
- Two-country, dynamic, general equilibrium model.
- Households are overlapping generations.
- Countries differ in discount factors (impatience).
- Analysis of consumption dynamics in response to productivity shocks.
- Empirical comparison using a VAR for the United States versus the rest of the G-7.
Main Findings and Analysis
- Permanent worldwide productivity shocks generate net foreign asset dynamics that align with a calibration where the United States is the impatient economy.
- Consumption dynamics observed in the data are not consistent with symmetric models that assume equal discount factors across countries.
- The model links non-zero, long-run foreign asset positions with differential consumption responses to productivity innovations across countries with heterogeneous time preferences.
Subjects and Keywords (as provided)
- Subjects: Consumption, External position, Foreign assets, Labor, National accounts, Production, Productivity, Real wages
- Keywords: benchmark solution, consumption, consumption profile, consumption tilting, Foreign assets, Global, impulse response, mover accent, Net foreign assets, productivity, productivity level, productivity shock, Real wages, steady state, steady-state productivity differential, WP
International Monetary Fund. "Net Foreign Asset Positions and Consumption Dynamics in the International Economy" (Working Paper No. 2005/082).
Content in this bundle
- 2. Permanent World Productivity Shock, Alternative Parameterizations