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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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  • Ansgar Belke

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  • Daniel Gros

Abstract

The purpose of this contribution is to illustrate the interaction between oil prices and the global savings equilibrium which can invert the usual IS type relationship between growth and interest rates. Higher growth is usually associated with higher interest rates. But higher growth leads to also to higher oil prices and hence to higher savings by oil producers. This mechanism might explain the ‘conundrum’ noted by Bernanke that during the last expansion global interest rates remained relatively low despite robust growth. Moreover, it 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 not only located at a lower interest rate but also at a lower growth rate than without the China effect. Finally, we argue that the lower real interest rates resulting from excess OPEC savings have facilitated the adjustment to the subprime crisis. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Ansgar Belke & Daniel Gros, 2014. "A simple model of an oil based global savings glut—the “China factor”and the OPEC cartel," International Economics and Economic Policy, Springer, vol. 11(3), pages 413-430, September.
  • Handle: RePEc:kap:iecepo:v:11:y:2014:i:3:p:413-430
    DOI: 10.1007/s10368-013-0241-z
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    References listed on IDEAS

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    Cited by:

    1. Umar Bala & Lee Chin, 2018. "Asymmetric Impacts of Oil Price on Inflation: An Empirical Study of African OPEC Member Countries," Energies, MDPI, Open Access Journal, vol. 11(11), pages 1-21, November.
    2. Beckmann, Joscha & Belke, Ansgar & Dreger, Christian, 2017. "The relevance of international spillovers and asymmetric effects in the Taylor rule," The Quarterly Review of Economics and Finance, Elsevier, vol. 64(C), pages 162-170.
    3. Olesia Kozlova & Jose Noguera-Santaella, 2019. "Relative efficiency of oil price versus oil output in promoting economic growth: Is OPEC’s strategy right?," Empirical Economics, Springer, vol. 57(6), pages 1997-2012, December.

    More about this item

    Keywords

    China factor; Current account adjustment; Interest rate; Oil prices; Saving glut; E21; E43; F32; Q43;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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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