An Equilibrium Model of "Global Imbalances" and Low Interest Rates
Ricardo J. Caballero, Emmanuel Farhi and Pierre-Olivier Gourinchas
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| Article Citation |
Caballero, Ricardo J., Emmanuel Farhi, and Pierre-Olivier Gourinchas. 2008. "An Equilibrium Model of "Global Imbalances" and Low Interest Rates." American Economic Review, 98(1): 358–93.
DOI:10.1257/aer.98.1.358
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| Abstract |
The sustained rise in US current account deficits, the stubborn decline in long-run
real rates, and the rise in US assets in global portfolios appear as anomalies
from the perspective of conventional models. This paper rationalizes these
facts as an equilibrium outcome when different regions of the world differ in
their capacity to generate financial assets from real investments. Extensions of
the basic model generate exchange rate and foreign direct investment excess
returns broadly consistent with the recent trends in these variables. The framework
is flexible enough to shed light on a range of scenarios in a global equilibrium
environment. (JEL: E44, F21, F31, F32)
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| Article Full-Text Access |
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| Additional Materials |
Link to Data Set
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| Authors |
Caballero, Ricardo J. (MIT)
Farhi, Emmanuel (Harvard U)
Gourinchas, Pierre-Olivier (U CA, Berkeley)
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| JEL Classifications |
E44: Financial Markets and the Macroeconomy
F21: International Investment; Long-term Capital Movements
F31: Foreign Exchange
F32: Current Account Adjustment; Short-term Capital Movements
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(pp. 5 - 37)