Savings Gluts and Interest Rates: The Missing Link to Europe

Michael Dooley, David Folkerts-Landau and Peter Garber

No 11520, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Data for world savings rates do not suggest that an aggregate glut of world savings has depressed US and international interest rates in recent years. Unusual but offsetting changes in savings rates have been limited to three regions: sharp declines in the US have been matched by sharp increases for developing Asia and the Middle East. The world saving rate has increased very little. There are two important features of this change in regional savings behavior. First, three-quarters of the increase in Asian and Middle Eastern savings has been placed in international reserves. Second, all these additional savings have been absorbed by the United States. Even if reserves are mostly placed initially in the US, we would not expect all the savings exported from these high savings regions to remain in the United States. A collapse of expected profits outside the US seems to us a compelling explanation for the US current account deficit and depressed international interest rates.

JEL-codes: F2 F32 F33 (search for similar items in EconPapers)
Date: 2005-08
New Economics Papers: this item is included in nep-fmk
Note: IFM ME
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Citations: View citations in EconPapers (23)

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