Aggregate Volatility and International Dynamics. The Role of Credit Supply

Download or read book Aggregate Volatility and International Dynamics. The Role of Credit Supply written by Pedro Gete and published by . This book was released on 2019 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: Changes in country-specific aggregate volatility are positively correlated with the current account but negatively correlated with investment, output and credit flows. An International Real Business Cycle model with time-varying aggregate uncertainty, through a precautionary savings channel, can account for the positive correlation but implies counterfactual comovements for the other variables. Adding a credit supply channel with default and lenders exposed to aggregate risk allows the model to match all the facts. Higher volatility contracts credit supply and lowers investment and output. The current account turns to a surplus because savings increase, but also because investment collapses.