Is there a global saving glut and is it the cause of the us current account deficit
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Is There a “Global Saving Glut”? And Is It the Cause of the US Current Account Deficit?. Menzie D.Chinn University of Wisconsin and NBER. Presentation at NABE Panel “International Capital Flows” ASSA, Chicago, January 6, 2007. Anticipating the Answers. Maybe (better investment drought)

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Is there a global saving glut and is it the cause of the us current account deficit

Is There a “Global Saving Glut”?And Is It the Cause of the US Current Account Deficit?

Menzie D.Chinn

University of Wisconsin and NBER

Presentation at NABE Panel

“International Capital Flows”

ASSA, Chicago, January 6, 2007


Anticipating the answers
Anticipating the Answers

  • Maybe (better investment drought)

  • Maybe


Too obvious a question
Too Obvious a Question?

  • Long term real rates are low

  • The U.S. CA deficit seems anomalously large

  • The East Asian surpluses appear anomalously large


Are real long term rates and the ca moving together
Are Real Long Term Rates and the CA Moving Together?

Note: 10 yr const. mat adjusted by Livingstone, Blue Chip, SPF 10 year expected infl.


Us long term real rates
US Long Term Real Rates

Source: St. Louis Fed, Philadelphia Fed


World real rates inflation indexed
World Real RatesInflation indexed

Source: BIS, St. Louis Fed


Is the us deficit too large
Is the US Deficit Too Large?

  • Panel regression approach

  • 1971-2004, 21 industrial, 97 developing countries (WDI), in five year panels

  • Include time fixed effects

  • X are macro variables

  • Z are financial development, institutional variables (credit; law & order)

    Source: M.Chinn & H. Ito, “Assaying the World Saving Glut”,http://www.ssc.wisc.edu/~mchinn/CA_Chinn_Ito.pdf



Is the us deficit too large1
Is the US Deficit Too Large?

  • Short answer: Barely, according to statistical level

  • Budget deficit is important



Reality check
Reality Check

Between 2000 and 2005, there was approximately a 4.3 percentage point swing in the US Federal budget balance, and a 2.2 percentage point swing in the U.S. current account balance. This outcome is consistent with a 0.5 coefficient.



How can low rates and imbalances be reconciled

NSUS’

REAsia

NSEAsia

RUS

IUS

IEAsia

NSUS

R0

R1

CA1EAsia > 0

CA1US < 0

How Can Low Rates and Imbalances Be Reconciled?




Ending thoughts
Ending Thoughts

  • Most of the debate has been cast in identities, or simple bivariate relationships

  • Chinn-Ito quantify the uncertainty surrounding the CA balance relationship

  • There is something to the saving glut story

  • But there is also a role for budget deficits

  • Financial development may or may not help reduce the saving glut


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