On the Source of U.S. Trade Deficits: Global Saving Glut or Domestic Saving Drought?

Joseph Steinberg

Review of Economic Dynamics, 2019, vol. 31, 200-223

Abstract: Are U.S. trade deficits caused by high foreign saving—a global saving glut—or low domestic saving—a domestic saving drought? To answer this question, I conduct a wedge accounting analysis of U.S. trade balance dynamics during 1995-2011 using a dynamic general equilibrium model. I find that a global saving glut explains 96 percent of U.S. trade deficits in excess of those that would have occurred naturally as a result of productivity growth and demographic change. Contrary to widespread belief, however, investment distortions, not a global saving glut, account for much of the decline in real interest rates that has accompanied U.S. trade deficits. (Copyright: Elsevier)

Keywords: Trade deficit; Global saving glut; Wedge accounting; Real exchange rate (search for similar items in EconPapers)
JEL-codes: F21 F32 F41 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (16)

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DOI: 10.1016/j.red.2018.07.002

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