Sergio de Ferra (Oxford), 08.05.2024

What is the relationship between international differences in income risk and countries' external asset positions? We study income risk and its higher-order moments in twelve countries. We then calibrate and discretize an income process that can account for countries' heterogeneity in income risk and embed this process in a standard heterogeneous-agents macro model. The model shows that international differences in higher-order moments of income risk give rise to sizable differences in international asset positions. We study global shocks through the lens of the model, such as the rise in automation or geopolitical fragmentation. The model predicts that higher and more unequal growth in the United States leads to important changes in other countries' saving and consumption inequality. A fall in foreign lending by countries with large international asset positions also affects substantially consumption risk in debtor economies.