A Caricature (Model) of the World Economy
Ricardo J. Caballero
Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)
November 23, 2010
MIT Department of Economics Working Paper No. 10-17
This paper provides a stylized model of the workings of a global economy where one of its key driving factors is economic agents’ continuous struggle to find assets in which to park financial resources. This struggle naturally comes with euphoria and disappointments, as many of the "parking lots" are built too quickly or are not of the desired size. There are also global asymmetries, as some countries are endowed with more empty land than others, and their growth potential may also differ. I use this caricature of the world economy to describe several of the main driving forces behind recent global macroeconomic events and to discuss "quantitative" easing policies.
Number of Pages in PDF File: 18
Keywords: Global equilibrium, shortage of assets, interest rates, asset prices, booms and busts, sovereign crises, financial reform and development, fiscal deficits, flight to quality, decoupling, quantitative easing
JEL Classification: E0, F0, G0
Date posted: December 14, 2010
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