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Credit Constraints and Growth in a Global Economy

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  • Stephane Guibaud

    (London School of Economics)

  • Keyu Jin

    (London School of Economics)

  • Nicolas Coeurdacier

    (SciencesPo and CEPR)

Abstract

In a period of rapid integration and accelerated growth in emerging markets, three striking trends have been (1) a large and persistent increase in the private savings rate in emerging markets and fall in advanced economies, (2) large net capital outflows away from emerging markets, and (3) a sustained decline in the world interest. We add an additional important fact: private savings is the main driver of the cross-sectional variation in the current account in the past data. Standard models do poorly in accounting for these facts. We show that incorporating asymmetric household credit constraints in a global general-equilibrium model can deliver qualitatively consistent and quantitatively significant results. An important implication of our model is that countries with identical preferences may see opposite responses of the savings rate to changes in the common world interest rate.

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Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 1040.

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Date of creation: 2011
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Handle: RePEc:red:sed011:1040

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Cited by:
  1. David Backus & Thomas Cooley & Espen Henriksen, 2013. "Demography and Low-Frequency Capital Flows," NBER Chapters, in: NBER International Seminar on Macroeconomics 2013, pages 94-102 National Bureau of Economic Research, Inc.
  2. Yi Wen, 2011. "Making sense of China’s astronomical foreign reserves," Working Papers 2011-018, Federal Reserve Bank of St. Louis.
  3. Bussière, Matthieu & Kalantzis, Yannick & Lafarguette, Romain & Sicular, Terry, 2013. "Understanding household savings in China: the role of the housing market and borrowing constraints," MPRA Paper 44611, University Library of Munich, Germany.
  4. Gourinchas, Pierre-Olivier & Rey, Hélène, 2013. "External Adjustment, Global Imbalances and Valuation Effects," CEPR Discussion Papers 9566, C.E.P.R. Discussion Papers.

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