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Precautionary Savings and Global Imbalances in World General Equilibrium

Author/Editor: Sandri, Damiano
Authorized for Distribution: June 1, 2011
Electronic Access: Free Full Text (PDF file size is 1,100KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: 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.
 
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Series: Working Paper No. 11/122
Subject(s): Consumption | Cross country analysis | Current account balances | Economic growth | Economic models | Gross domestic product | International financial system | Reserves accumulation | Savings
Author's keyword(s): Global imbalances | precautionary savings | net foreign assets | volatility
 
English  
    Published:   June 1, 2011        
            Format:   Paper
    Stock No:   WPIEA2011122   Pages:   18
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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