Risk, external adjustment and capital flows

• 成果类型: Article; Proceedings Paper
• 署名作者: Evans, Martin D. D.
• 署名单位: Georgetown University
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2013.12.008
• 发表日期: 2014
• 页码: S68-S93
• 关键词: International Capital Flows; External adjustment; Open-economy macro models; habits; incomplete markets; collateral constraints

摘要

This paper studies the process of external adjustment. I develop an open economy model with endowment and preference shocks that can account for the empirical behavior of real exchange rates, interest rates and consumption in the U.S. and Europe. The model includes cross border holdings of bonds and equity, and financial frictions that impede international risk-sharing. I find that external adjustment following endowment shocks predominantly takes place via trade flows, consistent with the intertemporal approach to the current account. In contrast, preference shocks that change investors' risk aversion induce adjustment via the trade and valuation channels; where the latter includes the effects of unexpected capital gains and loss on existing cross border holdings and changes in the expected future return differentials between foreign assets and liabilities. The model estimates imply that the valuation channel of external adjustment is more important for the U.S. than the trade channel. Consistent with this implication, I show that forecasts of future return differentials contributed most to the volatility of the U.S. net foreign asset position in the post Bretton-Woods era. (C) 2013 Elsevier B.V. All rights reserved.