Reconstructing the Savings Glut: The Global Implications of Asian Excess Saving

CAMA Working Paper No. 20/2014

40 Pages Posted: 22 Feb 2014

See all articles by Vipin Arora

Vipin Arora

United States Energy Information Administration

Rod Tyers

Australian National University (ANU) - School of Economics; The University of Western Australia - Department of Economics

Ying Catherine Zhang

The University of Western Australia - UWA Business School

Date Written: February 1, 2014

Abstract

East Asian, and primarily Chinese and Japanese, excess saving has been comparatively large and controversial since the 1980s. That it has contributed to the decline in the global “natural” rate of interest is consistent with Bernanke's much debated “savings glut” hypothesis for the decade after 1998, empirical explorations of which have proved unconvincing. In this paper it is argued that the comparatively integrated global market for long bonds is suggestive of trends in the “world” natural rate and that the longer term evidence supports a leading role for Asia's contribution to the expansion of ex ante global saving in explaining the declining trend in real long yields. Evidence is presented that trends in US 10 year bond yields are indeed representative of those in the “world” natural rate. The relationship between these yields and excess saving in China and Japan is then explored using a VECM that accounts for US monetary policy. The results support a negative long term relationship between 10-year yields and the current account surpluses of China and Japan. Projections using the same model then suggest that a feasible range of future pathways for those current accounts could cause the path of long rates to deviate by 330 basis points over the next decade.

Keywords: China, International finance

JEL Classification: F42, F43, F47

Suggested Citation

Arora, Vipin and Tyers, Rod and Zhang, Ying Catherine, Reconstructing the Savings Glut: The Global Implications of Asian Excess Saving (February 1, 2014). CAMA Working Paper No. 20/2014, Available at SSRN: https://ssrn.com/abstract=2399238 or http://dx.doi.org/10.2139/ssrn.2399238

Vipin Arora

United States Energy Information Administration ( email )

1000 Independence Ave., SW
Washington, DC 20585
United States

HOME PAGE: http://www.eia.gov/

Rod Tyers (Contact Author)

Australian National University (ANU) - School of Economics ( email )

Arndt Building
Australian National University
Canberra, Australian Capital Territory 0200
Australia
61-6-249-5124 (Fax)

The University of Western Australia - Department of Economics ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia
61 8 6488 5632 (Phone)

HOME PAGE: http://www.business.uwa.edu.au/school/staff-profiles?type=profile&dn=cn%3DRodney%20Tyers%2Cou%3DEcon

Ying Catherine Zhang

The University of Western Australia - UWA Business School ( email )

Crawley, Western Australia 6009
Australia

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