Working Paper: NBER ID: w13571
Authors: Horag Choi; Nelson C. Mark; Donggyu Sul
Abstract: We study the evolution of the U.S. current account in a two-country dynamic stochastic endowment model in which a single non-state contingent bond is the only internationally traded asset. The paper focuses on the world `saving glut' as the primary cause of continual deterioration in the current account and departs from the standard framework by introducing a three-parameter model of the subjective discount factor that depends on societal (per capita) variables that are external to household choices. When agents in the model are presented with U.S. and rest-of-world endowment data as the realization of the exogenous state vector, endogenously driven short-run international differences in subjective discounting that display increasing relative U.S. impatience create saving and current account imbalances that matches patterns observed in the data.
Keywords: No keywords provided
JEL Codes: F32; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increasing relative impatience in the US (D15) | Saving imbalance (E21) |
| Saving imbalance (E21) | Current account imbalance (F32) |
| Societal consumption rises above steady-state value (E21) | Increasing relative impatience in the US (D15) |
| Increasing relative impatience in the US (D15) | Decline in net foreign assets (F65) |
| US endowment changes (N22) | Consumption and saving behavior (E21) |
| Consumption and saving behavior (E21) | Current account dynamics (F32) |