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Eastern Caution, Western Exuberance and Global Imbalances

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Author Info

  • Miller Marcus

    (University of Warwick)

  • Santos Monteiro Paulo

    (University of Warwick)

  • Zhang Lei

    (University of Warwick)

Abstract

Why, at the end of the 20th century, should capital markets have served to transfer resources from emerging markets to those which are more developed? Mr. Bernanke’s interpretation—that the global imbalances reflected a Savings Glut in the East fueled by fear of financial crisis—has been challenged for neglecting dis-saving in the West. As we show, these contrasting perspectives can be combined in a stochastic two period, two bloc model: one bloc, the “East,” has a precautionary saving incentive due to future income uncertainty, while the other, the “West,” experiences a bubble and, because it smoothes consumption, runs a current account deficit. The tractable global model we use, which relaxes the conventional assumptions of a representative agent and unbiased expectations, shows how a significant resource transfer can be effected with relatively small changes in global interest rates.

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Bibliographic Info

Article provided by De Gruyter in its journal Journal of Globalization and Development.

Volume (Year): 2 (2011)
Issue (Month): 1 (August)
Pages: 1-42

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Handle: RePEc:bpj:globdv:v:2:y:2011:i:1:n:1

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Cited by:
  1. repec:cge:warwcg:78 is not listed on IDEAS
  2. Miller, Marcus & Zhang, Lei, 2012. "Whither Capitalism? Financial Externalities and Crisis," CAGE Online Working Paper Series 79, Competitive Advantage in the Global Economy (CAGE).
  3. Das, Debasish Kumar, 2012. "Determinants of current account imbalances in the global economy: A dynamic panel analysis," MPRA Paper 42419, University Library of Munich, Germany.

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