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Global Imbalances: "Made in the USA" or "Made in China"?

Author

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  • Tania El Kallab

    (Université de Cergy-Pontoise, THEMA)

Abstract

Three facts have characterized the pre-crisis debates in macroeconomics: the increase in the US current account decit, the decline in interest rates and the increase in the share of US assets in global portfolios. Caballero, Farhi and Gourinchas (2008) described these "anomalies" as being external to the United States. The high saving rates in Asian countries in the aftermath of the collapse of their financial markets led to a high demand for American nancial assets rather than domestic Asian ones, which were now considered unsafe. Our paper uses the basic model provided by Caballero, Farhi and Gourinchas to investigate whether an alternative explanation for these three facts, namely, the increase in American consumption. We show that the increase in US consumption would indeed cause a rise in capital flows towards the US (fact 1), but interest rates would rise rather than decrease (fact 2), and the share of american assets in global portfolios would not be affected (fact 3).

Suggested Citation

  • Tania El Kallab, 2014. "Global Imbalances: "Made in the USA" or "Made in China"?," Thema Working Papers 2014-28, THEMA (Théorie Economique, Modélisation et Applications), CY Cergy-Paris University, ESSEC and CNRS.
    • Handle: RePEc:ema:worpap:2014-28
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    References listed on IDEAS

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    1. Xafa, Miranda, 2007. "Global imbalances and financial stability," Journal of Policy Modeling, Elsevier, vol. 29(5), pages 783-796.
    2. Ms. Miranda Xafa, 2007. "Global Imbalances and Financial Stability," IMF Working Papers 2007/111, International Monetary Fund.
    3. Mr. Gian M Milesi-Ferretti & Mr. Olivier J Blanchard, 2009. "Global Imbalances: In Midstream?," IMF Staff Position Notes 2009/029, International Monetary Fund.
    4. Maurice Obstfeld & Kenneth S. Rogoff, 2005. "Global Current Account Imbalances and Exchange Rate Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 67-146.
    5. Gian M Milesi-Ferretti & Olivier J Blanchard, 2009. "Global Imbalances; In Midstream?," IMF Staff Position Notes 2009/29, International Monetary Fund.
    6. Rogoff, Kenneth & Obstfeld, Maurice, 2009. "Global Imbalances and the Financial Crisis: Products of Common Causes," CEPR Discussion Papers 7606, C.E.P.R. Discussion Papers.
    7. Giavazzi, Francesco & Blanchard, Olivier & Sá, Filipa, 2005. "The US Current Account and the Dollar," CEPR Discussion Papers 4888, C.E.P.R. Discussion Papers.
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    Keywords

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    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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