An Equilibrium Model of Global Imbalances and Low Interest Rates

By Ricardo J. Caballero, Emmanuel Farhi, P. Gourinchas. 2008

1,424 citations recorded by the source corpus.

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 anoma - lies 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 frame - work is flexible enough to shed light on a range of scenarios in a global equilib - rium environment. (JEL: E44, F21, F31, F32)

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/22523e0d10c3704c87daac5aed31e79ed2f4f499

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Citations in the corpus

Fear and Market Failure: Global Imbalances and ¿Self-Insurance¿ (2007, neutral): “As point C in the figure is on a budget line, which lies σ below the usual Fisherian intertemporal budget constraint, it thus appears that loss aversion can generate outcomes observationally equivalent to the lack of capitalization postulated by Caballero et al. (2006).”
Credit constraints and growth in a global economy (2012, neutral): “The law of motion for capital stock is given by K t+1 = (1 − δ)K i t + I i t , (2)”
Exorbitant privilege and exorbitant duty (2010, positive): “…the data accords well with the broad empirical evidence for the U.S. Diﬀerences in risk aversion play a similar role here as diﬀerences in the supply of assets in Caballero et al. (2008) or diﬀerences in the degree of domestic risks sharing in Mendoza et al. (2009) and generate ‘global imbalances.’”
The Euro and the Geography of International Debt Flows (2014, neutral): “…of ECB refinancing operations, see Cassola et al. (2013). paper does not add to the understanding of these phenomena discussed in the literature (Caballero et al., 2008; Mendoza et al., 2009), rather, it provides the analysis of relative patterns of gross financial flows across different…”
The Missing Wealth of Nations: Are Europe and the U.S. net Debtors or net Creditors? (2013, neutral): “See Dooley, Folkerts-Landau, and Garber (2003), Bernanke (2005), Dollar and Kraay (2006), Engel and Rogers (2006), Caballero, Farhi, and Gourinchas (2008), Mendoza, Rios-Rull, and Quadrini (2009), Carroll and Jeanne (2009), Ma and Haiwen (2009), Obstfeld, Shambaugh, and Taylor (2010), Aguiar and…”
Financial crisis and global imbalances: its labour market origins and the aftermath (2012, positive): “Going into more detail for the first group, Cooper (2007), Caballero et al. (2008) and Mendoza et al. (2007) argue that global imbalances are benign and temporary phenomena caused by a propensity to save by citizens of nations with emerging economies (where financial markets are less developed) and…”
Financial Globalization, Financial Crises and Contagion (2010, neutral): “Our work is also related to the recent studies examining the implications of nancial integration among countries that are heterogenous in the degree of domestic nancial development (see Aoki, Benigno, & Kiyotaki (2007), Caballero, Farhi, & Gourinchas (2008) , Mendoza, Quadrini, & R os-Rull (2008), ”
Global imbalances and the financial crisis: products of common causes (2009, neutral): “These commentators, including Cooper (2007) and Dooley, Folkerts- Landau, and Garber (2005), as well as Caballero, Farhi, and Gourinchas (2008a) and Mendoza, Quadrini, and Rios-Rull (2007), advanced frameworks in which the global imbalances were essentially a " win-win " phenomenon, with developing…”
Solving the present crisis and managing the leverage cycle (2010, neutral): “4.7 Global Imbalances Increased Leverage Caballero, Farhi, and Gourinchas (2008), Caballero (2010), and others have suggested that the enormous savings glut 28Bear Stearns was sold to J.P. Morgan, which took on Bear’s obligations, but only after the government guaranteed $29 billion of Bear’s…”