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A Simple Model of an Oil Based Global Savings Glut – The “China Factor” and the OPEC Cartel

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Author Info
Ansgar Belke ()
Daniel Gros
Abstract

The purpose of this contribution is to illustrate the mechanism by which higher oil prices might lead to lower interest rates in the context of a simple model that takes into account the global external savings equilibrium. The simple model has interesting implications for how one views the huge US current account deficit and how the emergence of China’s savings surplus and oil supply shocks impact the global economy.We show that the new equilibrium is located at a lower interest rate but also at a lower income level than without the China effect. Moreover, we argue that the lower real interest rates resulting from excess OPEC savings have facilitated the adjustment to the subprime crisis.

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Publisher Info
Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0128.

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Length: 29 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:rwi:repape:0128

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Related research
Keywords: China factor; current account adjustment; interest rate; oil prices; saving glut;

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Find related papers by JEL classification:
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Eyal Dvir & Ken Rogoff, 2009. "The Three Epochs of Oil," Boston College Working Papers in Economics 706, Boston College Department of Economics. [Downloadable!]
  2. Eyal Dvir & Kenneth S. Rogoff, 2009. "Three Epochs of Oil," NBER Working Papers 14927, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. James D. Hamilton, 2008. "Understanding Crude Oil Prices," NBER Working Papers 14492, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Dermot Gately & Hiliard G. Huntington, 2002. "The Asymmetric Effects of Changes in Price and Income on Energy and Oil Demand," The Energy Journal, International Association for Energy Economics, vol. 23(1), pages 19-56.
  5. Matthew Higgins & Thomas Klitgaard & Robert Lerman, 2006. "Recycling petrodollars," Current Issues in Economics and Finance, Federal Reserve Bank of New York, issue Dec. [Downloadable!]
  6. Robert H. Rasche & John A. Tatom, 1977. "The effects of the new energy regime on economic capacity, production, and prices," Review, Federal Reserve Bank of St. Louis, issue May, pages 2-12. [Downloadable!]
  7. Rasche, Robert H. & Tatom, John A., 1981. "Energy price shocks, aggregate supply and monetary policy: The theory and the international evidence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 14(1), pages 9-93, January. [Downloadable!] (restricted)
  8. Robert B. Barsky & Lutz Kilian, 2002. "Do We Really Know that Oil Caused the Great Stagflation? A Monetary Alternative," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 137-198 National Bureau of Economic Research, Inc. [Downloadable!]
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  9. John C.B. Cooper, 2003. "Price elasticity of demand for crude oil: estimates for 23 countries," OPEC Review, Organization of the Petroleum Exporting Countries, vol. 27(1), pages 1-8, 03. [Downloadable!] (restricted)
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This page was last updated on 2009-11-17.

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