Discussion of “Macroeconomic volatility and external imbalances” by Alessandra Fogli and Fabrizio Perri

Abstract

This paper by Fogli and Perri investigates both theoretically and empirically the effects of volatility on net foreign asset accumulation. There are two key contributions. On the empirical side, the paper shows that countries that experienced higher volatility relative to other OECD countries accumulated on average more net foreign assets. On the theoretical side, the paper shows that a two country incomplete market model with time-varying volatility can account for this empirical relationship. The authors are addressing an important topic related to earlier discussions on global imbalances, which have become even more relevant in the context of the global financial crisis. In this comment, I review some of the main empirical and theoretical findings and provide some further thoughts about the broader implications of this paper for international macro.