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Savings Gluts and Interest Rates: The Missing Link to Europe

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  • Michael P. Dooley
  • David Folkerts-Landau
  • Peter M. Garber

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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11520.

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Date of creation: Aug 2005
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Handle: RePEc:nbr:nberwo:11520

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  1. To Push or to Pull, That is the (G-20) Trillion Dollar Question
    by Stirling Newberry in firedoglake on 2009-03-26 19:30:46
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Cited by:
  1. Sebastian Edwards, 2007. "On Current Account Surpluses and the Correction of Global Imbalances," NBER Working Papers 12904, National Bureau of Economic Research, Inc.
  2. Shin-ichi Fukuda & Yoshifumi Kon, 2007. "Liquidity Risk Aversion, Debt Maturity, and Current Account Surpluses: A Theory and Evidence from East Asia," NBER Working Papers 13004, National Bureau of Economic Research, Inc.
  3. Jean-François Goux, 2008. "Ruptures épaisses et stationnarité en tendance : le cas du taux de change euro-dollar," Post-Print halshs-00333576, HAL.
  4. Michele Cavallo & Cedric Tille, 2006. "Could capital gains smooth a current account rebalancing?," 2006 Meeting Papers 252, Society for Economic Dynamics.
  5. Choi, Horag & Mark, Nelson C. & Sul, Donggyu, 2008. "Endogenous discounting, the world saving glut and the U.S. current account," Journal of International Economics, Elsevier, vol. 75(1), pages 30-53, May.
  6. Engler, Philipp, 2009. "Global rebalancing in a three-country model," Discussion Papers 2009/1, Free University Berlin, School of Business & Economics.
  7. Michael P. Dooley & Peter M. Garber & David Folkerts-Landau, 2007. "The Two Crises of International Economics," NBER Working Papers 13197, National Bureau of Economic Research, Inc.
  8. Fukuda, Shin-ichi & Kon, Yoshifumi, 2010. "Macroeconomic Impacts of Foreign Exchange Reserve Accumulation: Theory and International Evidence," ADBI Working Papers 197, Asian Development Bank Institute.
  9. Barry Eichengreen, 2008. "Should there be a coordinated response to the problem of global imbalances? Can there be one?," Working Papers 69, United Nations, Department of Economics and Social Affairs.
  10. Jong-Wha Lee & Warwick J. McKibbin, 2006. "Domestic Investment And External Imbalances In East Asia," CAMA Working Papers 2007-04, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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