Net foreign assets and the exchange rate: Redux revived

Cavallo, Michele; Ghironi, Fabio

doi:10.1016/s0304-3932(02)00122-8

Cited by 77 publications

(56 citation statements)

References 29 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The second approach, followed by Cavallo and Ghironi (2002), Smets and Wouters (2002) and Ganelli (2005) among the others, maintains a frictionless financial structure while introducing nonRicardian agents, so that the evolution of financial wealth affects consumption and stationarity is again achieved. In order to solve the model, however, these contributions take a step back to the Redux model by restoring a perfect foresight environment.…”

Section: Related Literaturementioning

confidence: 99%

“…Cavallo and Ghironi (2002) study the dynamic effects of unexpected productivity shocks for exchange rate determination and NFA dynamics, in a perfect foresight framework in which fiscal policy is always balanced budget. They show that an unexpected positive productivity shock deteriorates the external balance only as long as it is permanent, while it always appreciates the exchange rate.…”

Section: Related Literaturementioning

confidence: 99%

See 1 more Smart Citation

Productivity shocks, stabilization policies and the dynamics of net foreign assets

Giorgio¹,

Nisticò²

2013

Journal of Economic Dynamics and Control

View full text Add to dashboard Cite

In this paper we investigate the role of macroeconomic stabilization policies for the international transmission of productivity shocks and their effects on the external sector. We develop a two-country stochastic Dynamic New-Keynesian "perpetual youth" model of the business cycle with incomplete international financial markets. Our OLG structure implies stationary net foreign asset dynamics and allows for a thorough analysis of the interaction of monetary policy with non-balanced budget fiscal policy.We derive the dynamic and cyclical properties of fiscal deficit feedback rules and their implications for net foreign assets dynamics. Our results imply that the degree of "fiscal discipline", i.e. the extent to which the fiscal rule responds to debt dynamics, is crucial for the dynamics of net foreign assets. We show that under a counter-cyclical fiscal rule with low fiscal discipline temporary positive productivity shocks may result in substantial deteriorations of the Net Foreign Asset position in the medium run. This result crucially hinges on the interplay among nominal rigidities, non-balanced budget fiscal policy, and the wealth effects on consumption that are implied by our OLG structure.JEL classification: E43, E44, E52, E58

show abstract

Section: Related Literaturementioning

confidence: 99%

Section: Related Literaturementioning

confidence: 99%

Productivity shocks, stabilization policies and the dynamics of net foreign assets

Giorgio¹,

Nisticò²

2013

Journal of Economic Dynamics and Control

View full text Add to dashboard Cite

show abstract

“…See Cardia (1991) and, more recently, Cavallo and Ghironi (2002). 8 We consider a closed economy, in which the rate of interest is endogenous, implying that finite lives are not needed as a stationarity inducing device.…”

Section: Introductionmentioning

confidence: 99%

Fiscal policy, monopolistic competition, and finite lives

Heijdra

Ligthart

2007

Journal of Economic Dynamics and Control

View full text Add to dashboard Cite

The paper studies the short-run, transitional, and long-run output effects of permanent and temporary shocks in public consumption under various financing methods. To this end, a dynamic macroeconomic model for a closed economy is developed, which features a perfectly competitive final goods sector and a monopolistically competitive intermediate goods sector. Finitely lived households consume final goods, supply labor, and save part of their income. Amongst the findings for a permanent rise in public consumption are: (i) monopolistic competition increases the absolute value of the balanced-budget output multiplier; (ii) positive long-run output multipliers are obtained only if the generational turnover effect is dominated by the intertemporal labor supply effect; (iii) short-run output multipliers under lump-sum tax financing are smaller than long-run output multipliers if labor supply is elastic; and (iv) bond financing reduces the size of long-run output multipliers as compared to lump-sum tax financing and may give rise to non-monotonic adjustment paths if labor supply is sufficiently elastic and the speed of adjustment of lump-sum taxes is not too high. Temporary bond-financed fiscal shocks are shown to yield: (i) permanent effects on output; and (ii) negative long-run output multipliers. JEL codes: E12, E63, L16.

show abstract

“…Benigno (2001), Cavallo and Ghironi (2002), Iscan, Ghironi and Rebucci (2005) and Ghironi, Lee and Rebucci (2005) look at models where net asset positions are not zero. Benigno (2001) and Cavallo and Ghironi (2002) highlight the relevance of this dimension in the design of optimal monetary policy and exchange rate dynamics. These contributions however focus on a world where only one asset is traded internationally, and cannot capture the distinction between gross and net asset positions, which is a major dimension of international integration.…”

Section: An Overview Of Related Literaturementioning

confidence: 99%

“…The contrast is particularly striking for …nancial centers, such as the Caribbean countries and Switzerland. 11 The contrasted roles of the various countries as …nancial and trading partners implies that a movement in the dollar exchange rate can operate through di¤erent channels, depending on which currencies the dollar moves against. The …rst mechanism is the trade channel, with a depreciation of the dollar making U.S. goods more competitive and thereby boosting U.S. exports.…”

Section: The Prominent Role Of European Currenciesmentioning

confidence: 99%

Financial Integration and the Wealth Effect of Exchange Rate Fluctuations

Tille

2005

SSRN Journal

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractA growing body of research emphasizes the direct impact of exchange rate movements on the value of U.S. foreign assets. Because a substantial amount of U.S. assets are denominated in foreign currencies, a depreciation of the dollar leads to large capital gains. First, we present a detailed decomposition of the U.S. balance sheet, which exhibits substantial leverage in terms of currencies and across asset categories. The United States holds 50 percent of GDP in foreign-currency assets and is long in FDI (foreign direct investment) and equity positions and short in debt and banking positions. Then, we incorporate these features of international financial integration in a simple general equilibrium model and analyze how they affect the international transmission of monetary shocks. We find that financial integration is a central component of the model, with the valuation gains from an exchange rate depreciation leading to a welfare effect that is at least as large as that stemming from nominal rigidities alone but possibly much larger. We characterize how interdependence is affected by the composition of the portfolio across asset categories and how structural features of the model interact with financial integration.

show abstract

Net foreign assets and the exchange rate: Redux revived

Cited by 77 publications

References 29 publications

Productivity shocks, stabilization policies and the dynamics of net foreign assets

Productivity shocks, stabilization policies and the dynamics of net foreign assets

Fiscal policy, monopolistic competition, and finite lives

Financial Integration and the Wealth Effect of Exchange Rate Fluctuations

Contact Info

Product

Resources

About