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A Caricature (Model) of the World Economy

18 Pages Posted: 14 Dec 2010  

Ricardo J. Caballero

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: November 23, 2010

Abstract

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.

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

Suggested Citation

Caballero, Ricardo J., A Caricature (Model) of the World Economy (November 23, 2010). MIT Department of Economics Working Paper No. 10-17. Available at SSRN: https://ssrn.com/abstract=1724897 or http://dx.doi.org/10.2139/ssrn.1724897

Ricardo J. Caballero (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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