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Title:International risk-taking, volatility, and consumption growth PDF Logo
Authors:Giduskova, Maria
Larrain, Borja
Issue Date:2006
Series/Report no.:Working paper series // Federal Reserve Bank of Boston 06-17
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.
JEL:E21
F3
G1
O16
O4
Document Type:Working Paper
Appears in Collections:Working Paper Series, Federal Reserve Bank of Boston

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