Precautionary Savings and Global Imbalances in World General Equilibrium

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Author/Editor: Damiano Sandri
Release Date: © June, 2011
ISBN : 978-1-45526-339-4
Stock #: WPIEA2011122
Stock Status: On back-order

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In this paper we assess the implications of precautionary savings for global imbalances by considering a world economy model composed by the US, the Euro Area, Japan, China, oil-exporting countries, and the rest of the world. These areas are assumed to differ only with respect to GDP volatility which is calibrated based on the 1980-2008 period. The model predicts a wide dispersion in net foreign asset positions, with the highly volatile oil-exporting countries accumulating very large asset holdings. While heterogeneity in GDP volatility may lead to large imbalances in international investment positions, its impact on current accounts is much weaker. This is because countries are expected to move towards their optimal NFA at a very slow pace.


Consumption , Economic development , International financial system

More publications in this series: Working Papers

More publications by: Damiano Sandri