Fear and Market Failure: Global Imbalances and ¿Self-Insurance¿

By Marcus Miller, Lei Zhang. 2007

437 citations recorded by the source corpus.

This paper proposes an integrated framework to analyze jointly two key issues: the emergence of global imbalances and the precautionary motive for accumulating reserves. Standard models of general equilibrium would predict modest current account surpluses in the emerging markets if they face higher risk than the US itself. But, with pronounced Loss Aversion in emerging markets, their precautionary savings can generate substantial global imbalances, especially if there is an inefficient supply of global insurance. In principle, lower real interest rates will ensure that aggregate demand equals supply at a global level (though the required real interest may be negative). While a precautionary savings glut appears to be a temporary phenomenon, a process of correction triggered by a Sudden Stop in capital flows to the United States might lead to a hard landing.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/1cd1d0c0c3083e6f4898711fe38aca6fe148ed60

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Citations in the corpus

Financial Integration, Financial Development, and Global Imbalances (2009, background): “2 See also Bernanke (2005), Croke, Kamin and Leduc (2005), Gourinchas and Rey (2005), Hausmann & Sturzenegger (2005), Henriksen (2005), Lane and Milesi-Ferretti (2005), Cavallo and Tille (2006), Engel and Rogers (2006), Fogli and Perri (2006), Ghironi, Lee and Rebucci (2006), Miller and Zhang (2006”
The global credit boom: Challenges for macroeconomics and policy (2009, result): “See, for example, Miller and Zhang (2007). 20Dooley, Folkarts-Landau and Garber (2004) make a similar point regarding the uniqueness of the US but their emphasis is on the openness of the US economy to Asian exports compared with those of other advanced economies, notably in Europe.”
Consumption Smoothing? Livestock, Insurance and Drought in Rural Burkina Faso (2006, neutral): “Column (5) shows results from the Arellano- Bond (AB) estimator, which treats both income and household size as endogenous and uses lagged variables as instruments (Arellano and Bond, 1991; Jalan and Ravallion, 1999).”
Motives for sharing in social networks (2012, positive): “Our contribution is not to show that sharing is important in the villages we study—there has long been plentiful evidence that rural villagers engage in non-negligible amounts of sharing in risky environments (Townsend, 1994; Jalan and Ravallion, 1999).”
After the Drought: The Impact of Microinsurance on Consumption Smoothing and Asset Protection (2013, background): “For example, in early empirical work on coping strategies, both Townsend (1994) and Jalan and Ravallion (1999) note that poor households less effectively smooth consumption than do wealthier neighbors.”
(Forthcoming in The Review of Economics and Statistics) Precautionary Behavior, Migrant Networks and Household Consumption Decisions: An Empirical Analysis Using Household Panel Data from Rural China* (2006, positive): “…that occurred in the late 1980s and early 1990s. period covered by previous research on consumption smoothing and precautionary responses to risk (Jalan and Ravallion, 1999 and 2001, respectively).9 The emergent literature on migration in China suggests that remittances are correlated with…”
Determinants and Impacts of Rural Land Market Activity: Evidence from Nicaragua (2003, neutral): “As has been emphasized in the literature on poverty traps (e.g., Jalan & Ravallion, 1999), low physical and human capital could leave landless agricultural workers no alternative than to seek low-paid seasonal jobs which put them at the bottom of the earnings pyramid, something that is confirmed…”