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Savings Gluts and Interest Rates: The Missing Link to Europe

Author

Listed:
  • Michael P. Dooley
  • David Folkerts-Landau
  • Peter M. Garber

Abstract

Data for world savings rates do not suggest that an aggregate glut of world savings has depressed US and international interest rates in recent years. Unusual but offsetting changes in savings rates have been limited to three regions: sharp declines in the US have been matched by sharp increases for developing Asia and the Middle East. The world saving rate has increased very little. There are two important features of this change in regional savings behavior. First, three-quarters of the increase in Asian and Middle Eastern savings has been placed in international reserves. Second, all these additional savings have been absorbed by the United States. Even if reserves are mostly placed initially in the US, we would not expect all the savings exported from these high savings regions to remain in the United States. A collapse of expected profits outside the US seems to us a compelling explanation for the US current account deficit and depressed international interest rates.

Suggested Citation

  • Michael P. Dooley & David Folkerts-Landau & Peter M. Garber, 2005. "Savings Gluts and Interest Rates: The Missing Link to Europe," NBER Working Papers 11520, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:11520
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. To Push or to Pull, That is the (G-20) Trillion Dollar Question
      by Stirling Newberry in firedoglake on 2009-03-27 00:30:46

    Citations

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    Cited by:

    1. Michele Cavallo & Cédric Tille, 2006. "Current account adjustment with high financial integration: a scenario analysis," Economic Review, Federal Reserve Bank of San Francisco, pages 31-45.
    2. Shin-ichi Fukuda & Yoshifumi Kon, 2012. "Macroeconomic Impacts of Foreign Exchange Reserve Accumulation: Theory and International Evidence," Chapters,in: Monetary and Currency Policy Management in Asia, chapter 5 Edward Elgar Publishing.
    3. Harris Dellas and George S. Tavlas, 2011. "The Revived Bretton Woods System, Liquidity Creation, and Asset Price Bubbles," Cato Journal, Cato Journal, Cato Institute, vol. 31(3), pages 485-495, Fall.
    4. Alex Mandilaras & Helen Popper, 2009. "Capital Flows, Capitalization, and Openness in Emerging East Asian Economies," Review of International Economics, Wiley Blackwell, vol. 17(4), pages 734-750, September.
    5. Engler, Philipp, 2009. "Global rebalancing in a three-country model," Discussion Papers 2009/1, Free University Berlin, School of Business & Economics.
    6. Shin-ichi Fukuda & Yoshifumi Kon, 2008. "Liquidity Risk Aversion, Debt Maturity, and Current Account Surpluses: A Theory and Evidence from East Asia," NBER Chapters,in: International Financial Issues in the Pacific Rim: Global Imbalances, Financial Liberalization, and Exchange Rate Policy (NBER-EASE Volume 17), pages 39-70 National Bureau of Economic Research, Inc.
    7. Barry Eichengreen, 2008. "Should there be a coordinated response to the problem of global imbalances? Can there be one?," Working Papers 69, United Nations, Department of Economics and Social Affairs.
    8. Michael P. Dooley & Peter M. Garber & David Folkerts-Landau, 2007. "The Two Crises of International Economics," NBER Working Papers 13197, National Bureau of Economic Research, Inc.
    9. Jong-Wha Lee & Warwick J. McKibbin, 2007. "Domestic Investment And External Imbalances In East Asia," CAMA Working Papers 2007-04, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    10. Sebastian Edwards, 2007. "On Current Account Surpluses and the Correction of Global Imbalances," NBER Working Papers 12904, National Bureau of Economic Research, Inc.
    11. Choi, Horag & Mark, Nelson C. & Sul, Donggyu, 2008. "Endogenous discounting, the world saving glut and the U.S. current account," Journal of International Economics, Elsevier, vol. 75(1), pages 30-53, May.
    12. Michele Cavallo & Cedric Tille, 2006. "Could capital gains smooth a current account rebalancing?," Staff Reports 237, Federal Reserve Bank of New York.
    13. Evan LAU & Nelson FU, 2011. "Financial And Current Account Interrelationship: An Empirical Test," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 6(1(15)/ Sp), pages 34-42.
    14. Jean-François Goux, 2008. "Ruptures épaisses et stationnarité en tendance : le cas du taux de change euro-dollar," Post-Print halshs-00333576, HAL.

    More about this item

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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