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The Effects of the Saving and Banking Glut on the U.S. Economy

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  • Justiniano, Alejandro

    (Federal Reserve Bank of Chicago)

  • Primiceri, Giorgio E.

    ()
    (Northwestern University)

  • Tambalotti, Andrea

    (Federal Reserve Bank of Chicago)

Abstract

We use a quantitative equilibrium model with houses, collateralized debt and foreign borrowing to study the impact of global imbalances on the U.S. economy in the 2000s. Our results suggest that the dynamics of foreign capital flows account for between one fourth and one third of the increase in U.S. house prices and household debt that preceded the financial crisis. The key to these findings is that the model generates the sustained low level of interest rates observed over that period.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-2013-17.

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Length: 46 pages
Date of creation: 29 Nov 2013
Date of revision: 29 Nov 2013
Handle: RePEc:fip:fedhwp:wp-2013-17

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Keywords: financial crisis; housing prices; household debt;

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