Working Paper: NBER ID: w11520
Authors: Michael P. Dooley; David Folkerts-Landau; Peter M. Garber
Abstract: Data for world savings rates do not suggest that an aggregate glut of world savings has depressed US and international interest rates in recent years. Unusual but offsetting changes in savings rates have been limited to three regions: sharp declines in the US have been matched by sharp increases for developing Asia and the Middle East. The world saving rate has increased very little. There are two important features of this change in regional savings behavior. First, three-quarters of the increase in Asian and Middle Eastern savings has been placed in international reserves. Second, all these additional savings have been absorbed by the United States. Even if reserves are mostly placed initially in the US, we would not expect all the savings exported from these high savings regions to remain in the United States. A collapse of expected profits outside the US seems to us a compelling explanation for the US current account deficit and depressed international interest rates.
Keywords: savings gluts; interest rates; current account deficit; international reserves
JEL Codes: F2; F32; F33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased savings in Asia and the Middle East (O53) | decrease in U.S. interest rates (E43) |
| declines in U.S. savings (D14) | increase in U.S. current account deficit (F32) |
| collapse of expected profits outside the U.S. (F69) | increase in U.S. current account deficit (F32) |
| official capital inflows from foreign governments (F21) | decrease in U.S. interest rates (E43) |