Precautionary Savings and Global Imbalances in World General Equilibrium

19 Pages Posted: 12 Jun 2011

See all articles by Damiano Sandri

Damiano Sandri

International Monetary Fund (IMF) - Research Department

Date Written: May 2011

Abstract

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.

Keywords: Consumption, Cross country analysis, Current account balances, Economic growth, Economic models, Gross domestic product, International financial system, Reserves accumulation, Savings

Suggested Citation

Sandri, Damiano, Precautionary Savings and Global Imbalances in World General Equilibrium (May 2011). IMF Working Papers, Vol. , pp. 1-18, 2011. Available at SSRN: https://ssrn.com/abstract=1861792

Damiano Sandri (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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