An equilibrum model of "global imbalances" and low interest rates

Ricardo Caballero (), Emmanuel Farhi and Pierre-Olivier Gourinchas

No 222, BIS Working Papers from Bank for International Settlements

Abstract: Three of the most important recent facts in global macroeconomics - the sustained rise in the US current account deficit, the stubborn decline in long run real rates, and the rise in the share of US assets in global portfolio - appear as anomalies from the perspective of conventional wisdom and models. Instead, in this paper we provide a model that rationalizes these facts as an equilibrium outcome of two observed forces: a) potential growth differentials among different regions of the world and, b) heterogeneity in these regions' capacity to generate financial assets from real investments. In extensions of the basic model, we also generate exchange rate and FDI excess returns which are broadly consistent with the recent trends in these variables. More generally, the framework is flexible enough to shed light on a range of scenarios in a global equilibrium environment.

Keywords: exchange rates; capital flows; Current account deficits; interest rates; global portfolios and equilibrium; growth and financial development asymmetries; FDI; intermediation rents (search for similar items in EconPapers)
JEL-codes: E0 F3 F4 G1 (search for similar items in EconPapers)
Pages: 88 pages
Date: 2006-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (40)

Downloads: (external link)
http://www.bis.org/publ/work222.pdf Full PDF document (application/pdf)
http://www.bis.org/publ/work222.htm (text/html)

Related works:
Journal Article: An Equilibrium Model of "Global Imbalances" and Low Interest Rates (2008)
Working Paper: An Equilibrium Model of "Global Imbalances" and Low Interest Rates (2008)
Working Paper: An Equilibrium Model of "Global Imbalances" and Low Interest Rates (2006)
Working Paper: An Equilibrium Model of "Global Imbalances" and Low Interest Rates (2006)
Working Paper: An Equilibrium Model of 'Global Imbalances' and Low Interest Rates (2006)
Working Paper: An Equilibrium Model of "Global Imbalances" and Low Interest Rates (2006)
Working Paper: An Equilibrium Model of Global Imbalances and Low Interest Rates (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:222

Access Statistics for this paper

More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().