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A Simple Model of an Oil Based Global Savings Glut: The "China Factor" and the OPEC Cartel

Ansgar Belke and Daniel Gros

No 911, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: The purpose of this contribution is to illustrate the mechanism by which higher oil prices might lead to lower interest rates in the context of a simple model that takes into account the global external savings equilibrium. The simple model has interesting implications for how one views the huge US current account deficit and how the emergence of China's savings surplus and oil supply shocks impact the global economy. We show that the new equilibrium is located at a lower interest rate but also at a lower growth rate than without the China effect. Moreover, we argue that the lower real interest rates resulting from excess OPEC savings have facilitated the adjustment to the subprime crisis.

Keywords: China factor; current account adjustment; interest rate; oil prices; saving glut (search for similar items in EconPapers)
JEL-codes: E21 E43 F32 Q43 (search for similar items in EconPapers)
Pages: 26 p.
Date: 2009
New Economics Papers: this item is included in nep-ene, nep-mac and nep-opm
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http://www.diw.de/documents/publikationen/73/diw_02.c.242605.de/dp911.pdf (application/pdf)

Related works:
Journal Article: A simple model of an oil based global savings glut—the “China factor”and the OPEC cartel (2014) Downloads
Working Paper: A Simple Model of an Oil Based Global Savings Glut – The ""China Factor"" and the OPEC Cartel (2009) Downloads
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