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Eastern caution, Western ebullience and global imbalances
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Miller, Marcus, Santos-Monteiro, Paulo and Zhang, Lei (2008) Eastern caution, Western ebullience and global imbalances. In: 4th Annual Conference on Economic Growth and Development, Indian Statistical Institute, New Delhi, 17-18 Dec 2008 (Unpublished)
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Official URL: http://www.isid.ac.in/~pu/conference/dec_08_conf/P...
Abstract
Why the Asian ‘savings glut’ in Emerging Markets? Why a Western consumption boom? A tractable two-bloc global model is used to provide answers - but only after relaxing the conventional assumptions of a representative agent in each bloc and of rational expectations everywhere. When ex ante identical consumers in Asia fear the effects of macro shocks impacting on a subset of the population, anticipated ex post heterogeneity leads to precautionary saving. When Western consumers mis-forecast the future price of non-traded goods, over-optimism encourages current excess consumption of traded goods.
Both factors tend to increase global imbalances on current account; but the downward pressure of precautionary savings on global interest rates is checked by the consumer boom. For the global economy, Irrational Exuberance has helped avoid falling into a Japanese-style Liquidity Trap. What might happen next is what we discuss in conclusion.
| Item Type: | Conference Item (Paper) | ||||
|---|---|---|---|---|---|
| Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HC Economic History and Conditions |
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| Divisions: | Faculty of Social Sciences > Economics | ||||
| Official Date: | 18 December 2008 | ||||
| Dates: |
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| Status: | Not Peer Reviewed | ||||
| Publication Status: | Unpublished | ||||
| Funder: | ESRC | ||||
| Grant number: | RES-156-25-0032 | ||||
| Conference Paper Type: | Paper | ||||
| Title of Event: | 4th Annual Conference on Economic Growth and Development | ||||
| Type of Event: | Conference | ||||
| Location of Event: | Indian Statistical Institute, New Delhi | ||||
| Date(s) of Event: | 17-18 Dec 2008 | ||||
| Related URLs: |
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