Journal Article

International risk-taking, volatility, and consumption growth

Abstract: We show that countries that take on more international risk are rewarded with higher expected consumption growth. International risk is defined as the beta of a country's consumption growth with world consumption growth. High-beta countries hold more foreign assets, as predicted by the theory. Despite the positive effects of beta, a country's idiosyncratic volatility is negatively correlated with expected consumption growth. Therefore, uninsured shocks affect not only current growth, but also future consumption growth. High-volatility countries have worse net foreign asset positions, suggesting that solvency constraints limit their future growth.

Keywords: Consumption (Economics); Risk;

Bibliographic Information

Provider: Federal Reserve Bank of Boston

Part of Series: Communities and Banking

Publication Date: 2006

Order Number: 06-17