An Equilibrium Model of "Global Imbalances" and Low Interest Rates

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

Scholarly Articles from Harvard University Department of Economics

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 portfolios — 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 stemming from the heterogenity in different regions of the world in their capacity to generate ï¬ nancial 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. Beyond the specific sequence of events that motivate our analysis, the framework is flexible enough to shed light on a range of scenarios in a global equilibrium environment.

Date: 2008
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Published in American Economic Review

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http://dash.harvard.edu/bitstream/handle/1/3229094/Farhi_EquilibriumModel.pdf (application/pdf)

Related works:
Journal Article: An Equilibrium Model of "Global Imbalances" and Low Interest Rates (2008)
Working Paper: An equilibrum 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)
Working Paper: An Equilibrium Model of Global Imbalances and Low Interest Rates (2006)
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