Miller, Marcus, Santos-Monteiro, Paulo and Zhang, Lei (2011) Eastern caution, western exuberance and global imbalances. Journal of Globalization and Development, Vol.2 (No.1). Article no. 1. doi:10.2202/1948-1837.1120 ISSN 1948-1837.

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Abstract

Why, at the end of the 20th century, should capital markets have served to transfer resources from emerging markets to those which are more developed? Mr. Bernanke’s interpretation—that the global imbalances reflected a Savings Glut in the East fueled by fear of financial crisis—has been challenged for neglecting dis-saving in the West. As we show, these contrasting perspectives can be combined in a stochastic two period, two bloc model: one bloc, the “East,” has a precautionary saving incentive due to future income uncertainty, while the other, the “West,” experiences a bubble and, because it smoothes consumption, runs a current account deficit. The tractable global model we use, which relaxes the conventional assumptions of a representative agent and unbiased expectations, shows how a significant resource transfer can be effected with relatively small changes in global interest rates.

Item Type:	Journal Article
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HC Economic History and Conditions
Divisions:	Faculty of Social Sciences > Economics
Journal or Publication Title:	Journal of Globalization and Development
Publisher:	Walter de Gruyter GmbH & Co. KG
ISSN:	1948-1837
Official Date:	December 2011
Dates:	Date Event December 2011 Published
Volume:	Vol.2
Number:	No.1
Page Range:	Article no. 1
DOI:	10.2202/1948-1837.1120
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access
Funder:	ESRC
Grant number:	RES-156-25-0032

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