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Bu¤er Stock Saving and the

By Christopher D. Carroll and Olivier Jeanne

Abstract

We model the motives for residents of a country to hold foreign assets, including the precautionary motive that has been omitted from much previous literature as intractable. Our model captures many of the principal insights from the existing specialized literature on the precautionary motive, deriving a convenient formula for the economy’s target value of assets. The target is the level of assets that balances impatience, prudence, risk, intertemporal substitution, and the rate of return. We use the model to shed light on two topical questions: The “upstream ” flows of capital from developing countries to advanced countries, and the long-run impact of resorbing global financial imbalances

Topics: Net Foreign Assets, Sovereign Wealth Funds, Foreign Exchange Reserves, Small Open Economy
Year: 1992
OAI identifier: oai:CiteSeerX.psu:10.1.1.352.4720
Provided by: CiteSeerX
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