NBER Working Papers by Alessandro Rebucci

We assess the extent to which a country’s external capital structure can aid in mitigating the macroeconomic impact of oil price shocks. We study two Caribbean economies highly vulnerable to oil price shocks, an oil-importer (Jamaica) and an oil-exporter (Trinidad and Tobago). From a risk-sharing perspective, a desirable external capital structure is one that, through international capital gains and losses, helps offset responses of the current account balance to external shocks. We find that both countries could alter their international portfolio to provide a more effective buffer against such shocks.

Ongoing international financial integration has greatly increased foreign asset holdings across countries, enhancing the scope for a "valuation channel" of external adjustment (i.e., the changes in a country's net foreign asset position due to exchange rate and asset price changes). We examine this channel of adjustment in a dynamic stochastic general equilibrium model with international equity trading in incomplete asset markets. We show that the risk-sharing properties of international equity trading are tied to the distribution of income between labor income and profits when equities are defined as claims to firm profits in a production economy. For a given level of international financial integration (measured by the size of gross foreign asset positions), the quantitative importance o...