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Eastern Caution, Western Exuberance and Global Imbalances

Author

Listed:
  • 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. Bernankes interpretationthat the global imbalances reflected a Savings Glut in the East fueled by fear of financial crisishas 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.

Suggested Citation

  • Miller Marcus & Santos Monteiro Paulo & Zhang Lei, 2011. "Eastern Caution, Western Exuberance and Global Imbalances," Journal of Globalization and Development, De Gruyter, vol. 2(1), pages 1-42, August.
  • Handle: RePEc:bpj:globdv:v:2:y:2011:i:1:n:1
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    References listed on IDEAS

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    Cited by:

    1. Miller, Marcus & Zhang, Lei, 2012. "Whither Capitalism? Financial Externalities and Crisis," CAGE Online Working Paper Series 79, Competitive Advantage in the Global Economy (CAGE).
    2. Debasish Kumar Das, 2016. "Determinants of current account imbalance in the global economy: a dynamic panel analysis," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 5(1), pages 1-24, December.

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