Precautionary Savings and Global Imbalances in World General Equilibrium
IMF Working Papers, June 1, 2011
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- Precautionary Savings and Global Imbalances in World General Equilibrium
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Bibliographic details
- Authors: Damiano Sandri
- Published: June 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455263394.001
Summary
- Paper assesses the implications of precautionary savings for global imbalances using a world economy model composed of the US, the Euro Area, Japan, China, oil-exporting countries, and the rest of the world.
- Areas 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 (NFA) positions, with highly volatile oil-exporting countries accumulating very large asset holdings.
- Heterogeneity in GDP volatility may lead to large imbalances in international investment positions, but its impact on current accounts is much weaker because countries are expected to move towards their optimal NFA at a very slow pace.
Model and Calibration
- World economy model includes: US, Euro Area, Japan, China, oil-exporting countries, rest of the world.
- Cross-country differences: only GDP volatility.
- Calibration period for GDP volatility: 1980-2008.
Key Findings
- Wide dispersion in net foreign asset positions across countries.
- Oil-exporting countries (high GDP volatility) accumulate very large asset holdings.
- Impact on current accounts is much weaker than on NFA positions.
- Slow adjustment: countries move towards their optimal NFA at a very slow pace, limiting current-account effects.
Subject and Keywords
- Subject: Current account, Current account imbalances, Current account surpluses, Foreign assets, Precautionary savings
- Keywords: NFA position, WP