Corporate Saving in Global Rebalancing
28 Pages Posted: 25 Sep 2014
Date Written: June 2014
In this paper, we examine theoretically how corporate saving in emerging markets is contributing to global rebalancing. We consider a two-country dynamic general equilibrium model, based on Bacchetta and Benhima (2014), with a Developed and an Emerging country. Firms need to save in liquid assets to finance their production projects, especially in the Emerging country. In this context, we examine the impact of a credit crunch in the Developed country and of a growth slowdown in both countries. These three shocks imply smaller global imbalances and a positive output comovement, but have a different impact on interest rates. Contrary to common wisdom, a slowdown in the Emerging market implies a trade balance improvement in the Developed country.
Keywords: Capital Flows, Credit Constraints, Financial Crisis, Global Imbalances
JEL Classification: E22, F21, F41, F44
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