The Real and Financial Implications of the Global Saving Glut: A Three-Country Model
Résumé
The model presented in this paper has two objectives. First, it models global imbalances in a simple way while conserving real and financial approaches. This double approach is necessary because Global Imbalances are due to the conjunction of financial and real phenomena: the increase in the price of commodities, the accumulation of foreign reserves by the Asian central banks, the limited absorption capacity of the OPEC countries, the insuficient development of the Asian financial system and the perception of better returns in the US. The second objective is to model the global saving glut hypothesis and to show its implications. We start with a model which consists of three identical countries and then we replicate the current pattern of global imbalances in introducing three asymmetries: a fixed exchange rate between Asia and the United States, a limited absorption capacity in Asia and endogenous propensity to spend in the United States. In order to avoid the recession linked to the increase of their propensity to import, the United States increase their propensity to spend. This adjustment has a cost: (i) the Global Imbalances grow quickly with an increase of current account imbalances and net foreign assets in both the US and Asia ; (ii) the euro area supports an appreciation of its exchange rate which put it in a long depression.
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