Working Paper: NBER ID: w15759
Authors: David Laibson; Johanna Mollerstrom
Abstract: Bernanke (2005) hypothesized that a "global savings glut" was causing large trade imbalances. However, we show that the global savings rates did not show a robust upward trend during the relevant period. Moreover, if there had been a global savings glut there should have been a large investment boom in the countries that imported capital. Instead, those countries experienced consumption booms. National asset bubbles explain the international imbalances. The bubbles raised consumption, resulting in large trade deficits. In a sample of 18 OECD countries plus China, movements in home prices alone explain half of the variation in trade deficits.
Keywords: capital flows; consumption booms; asset bubbles; savings glut hypothesis
JEL Codes: E02; F01; G01
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| asset price movements (G19) | consumption boom (E21) |
| consumption boom (E21) | trade deficits (F14) |
| asset price movements (G19) | current account deficits (F32) |
| global savings glut hypothesis (E21) | investment boom (E22) |
| global savings glut hypothesis (E21) | consumption boom (E21) |