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The Demand for Liquid Assets, Corporate Saving, and Global Imbalances

  • Bacchetta Philippe
  • Benhima Kenza

In the recent decade, capital outflows from emerging economies, in the form of a demand for liquid assets, have played a key role in the context of global imbalances. In this paper, we model the demand for liquid assets by firms in a dynamic open-economy macroeconomic model. We find that the implications of this model are very different from standard models, because the demand for foreign bonds is a complement to domestic investment rather than a substitute. We show that this complementarity is at work when an emerging economy is on its convergence path or when it has a higher TFP growth rate. This framework is consistent with global imbalances and with a number of stylized facts such as high corporate saving rates in high-growth, high-investment, emerging countries.

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Paper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 10.12.

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Length: 43 pages
Date of creation: Dec 2010
Date of revision:
Publication status: Forthcoming under the title "The Demand for Liquid Assets, Corporate Saving, and International Capital Flows", in: Journal of the European Economic Association
Handle: RePEc:lau:crdeep:10.12
Contact details of provider: Postal:
Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne

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