International Capital Flows, External Assets, and Output Volatility

Michael Krause, Mathias Hoffmann () and Peter Tillmann

VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy from Verein für Socialpolitik / German Economic Association

Abstract: This paper proposes a new perspective on international capital flows and countries' long-run external asset position. Cross-sectional evidence for 84 developing countries shows that over the last three decades countries that have had on average higher volatility of output growth: (1) accumulated higher external assets in the long-run and (2) experienced more procyclical capital outflows over the business cycle than those countries with a same growth rate but a more stable output path. We explain this finding with a stochastic real business cycle growth model in which higher uncertainty of expected income increases households' precautionary savings. In the model, the combination of income risk and the precautionary savings motive leads to procyclical capital outflows at business cycle frequency and a higher long-run external asset position.

JEL-codes: D83 F32 F44 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-dge, nep-ifn and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Journal Article: International capital flows, external assets and output volatility (2019)
Working Paper: International Capital Flows, External Assets and Output Volatility (2014)
Working Paper: International capital flows, external assets and output volatility (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc14:100508

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