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A Simple Model of an Oil Based Global Savings Glut: The "China Factor" and the OPEC Cartel

  • Ansgar Belke
  • Daniel Gros

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 growth rate 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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File URL: http://www.diw.de/documents/publikationen/73/diw_02.c.242605.de/dp911.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 911.

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Length: 26 p.
Date of creation: 2009
Date of revision:
Handle: RePEc:diw:diwwpp:dp911
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  1. Ben S. Bernanke, 2005. "The global saving glut and the U.S. current account deficit," Speech 77, Board of Governors of the Federal Reserve System (U.S.).
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  3. Paul Welfens, 2008. "Portfolio modelling and growth in open economies," International Economics and Economic Policy, Springer, vol. 5(3), pages 237-253, November.
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  12. Wayne D. Angell, 1992. "Commodity Prices and Monetary Policy: What Have We Learned?," Cato Journal, Cato Journal, Cato Institute, vol. 12(1), pages 185-192, Spring/Su.
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  14. Alan Greenspan, 2005. "China: testimony before the Committee on Finance, U.S. Senate, June 23, 2005," Speech 125, Board of Governors of the Federal Reserve System (U.S.).
  15. Olivier J. Blanchard & Marianna Riggi, 2009. "Why are the 2000s so different from the 1970s? A structural interpretation of changes in the macroeconomic effects of oil prices," NBER Working Papers 15467, National Bureau of Economic Research, Inc.
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  18. Wirl, Franz, 2009. "OPEC as a political and economical entity," European Journal of Political Economy, Elsevier, vol. 25(4), pages 399-408, December.
  19. 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. 0(Number 1), pages 19-55.
  20. Eckhard Wurzel & Luke Willard & Patrice Ollivaud, 2009. "Recent Oil Price Movements: Forces and Policy Issues," OECD Economics Department Working Papers 737, OECD Publishing.
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