An equilibrum [sic] model of "global imbalances" and low interest rates
By: by Ricardo J. Caballero, Emmanuel Farhi and Pierre-Olivier Gourinchas
Contributors: Farhi, Emmanuel; Gourinchas, Pierre-Olivier; Bank for International Settlements. Monetary and Economic Department
Series: BIS working papers -- no. 222
Publisher: Bank for International Settlements
Published: 2006
Place of publication: Basel, Switzerland
Language: eng
Format: [electronic resource] /
Other titles: Equilibrium model of "global imbalances" and low interest rates
Description: Three of the most important recent facts in global macroeconomics -- the sustained rise in the US current account deficit, the stubborn decline in long run real rates, and the rise in the share of US assets in global portfolio -- appear as anomalies from the perspective of conventional wisdom and models. Instead, in this paper we provide a model that rationalizes these facts as an equilibrium outcome of two observed forces: a) potential growth differentials among different regions of the world and, b) hetero-geneity in these regions' capacity to generate financial assets from real investments. In extensions of the basic model, we also generate exchange rate and FDI excess returns which are broadly consistent with the recent trends in these variables. More generally, the framework is flexible enough to shed light on a range of scenarios in a global equilibrium environment.
Notes: Title from PDF file (viewed on Jan. 4, 2007).

"Monetary and Economic Department."

"December 2006."

Includes bibliographical references.

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