Domestic or global imbalances? Rising income risk and the fall in the US current account

• 成果类型: Article
• 署名作者: Broer, Tobias
• 署名单位: Stockholm University
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/j.jmoneco.2014.02.002
• 发表日期: 2014
• 页码: 47-67
• 关键词: precautionary savings; Global imbalances; limited commitment; default; Idiosyncratic income risk

摘要

When default leads to exclusion from financial markets, the implied loss of consumption smoothing opportunities is more costly when income volatility is high. A rise in income risk thus makes default less attractive, allowing creditors to relax borrowing limits. I show how, in an open economy, this endogenous financial deepening may reduce aggregate foreign assets in response to a rise in individual income risk, against the precautionary savings intuition. Conditions for this depend on whether default constrains complete or uncontingent contracts. The post-1980 rise in US household income risk strongly reduces foreign assets when domestic markets are complete or world interest rates low. (C) 2014 Elsevier B.V. All rights reserved.