Global Imbalances: "Made in the USA" or "Made in China"?

Tania El Kallab ()

No 2014-28, THEMA Working Papers from THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise

Abstract: Three facts have characterized the pre-crisis debates in macroeconomics: the increase in the US current account decit, the decline in interest rates and the increase in the share of US assets in global portfolios. Caballero, Farhi and Gourinchas (2008) described these "anomalies" as being external to the United States. The high saving rates in Asian countries in the aftermath of the collapse of their financial markets led to a high demand for American nancial assets rather than domestic Asian ones, which were now considered unsafe. Our paper uses the basic model provided by Caballero, Farhi and Gourinchas to investigate whether an alternative explanation for these three facts, namely, the increase in American consumption. We show that the increase in US consumption would indeed cause a rise in capital flows towards the US (fact 1), but interest rates would rise rather than decrease (fact 2), and the share of american assets in global portfolios would not be affected (fact 3).

Keywords: Current account decits; capital ows; interest rates; global portfolio share; consumption; financial assets (search for similar items in EconPapers)
JEL-codes: E37 E43 F43 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-mac and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:ema:worpap:2014-28

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