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Begin New Search Topic International Trade and Finance Author Christopher D. Carroll

1. A Tractable Model of Precautionary Reserves, Net Foreign Assets, or Sovereign Wealth Funds

Author:
Christopher D. Carroll and Olivier Jeanne
Publication Date:
10-2009
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
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.
Topic:
Economics, International Trade and Finance, and Sovereign Wealth Funds

2. The Epidemiology of Microeconomic Expectations

Author:
Christopher D. Carroll
Publication Date:
12-2001
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
Since the foundational work of Keynes (1936), macroeconomists have emphasized the importance of agents' expectations in determining macroeconomic outcomes. Yet in recent decades macroeconomists have devoted almost no effort to modeling actual empirical expectations data, instead assuming all agents' expectations are 'rational.' This paper takes up the challenge of modeling empirical household expectations data, and shows that a simple, standard model from epidemiology does a remarkably good job of explaining the deviations of household inflation and unemployment expectations from the 'rational expectations' benchmark. Furthermore, a microfoundations or 'agent-based' version of the model may be able to explain, in a way that still permits aggregation, stark rejections of the pure rational expectations framework like Souleles's (2002) finding that members of different demographic groups have sharply different predictions for macroeconomic aggregates like the inflation rate.
Topic:
Economics and International Trade and Finance
Political Geography:
United States and Latin America