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Working Paper
Explaining the global pattern of current account imbalances
This paper assesses some of the explanations that have been put forward for the global pattern of current account imbalances that has emerged in recent years: in particular, the large U.S. current account deficit and the large surpluses of the Asian developing economies. Based on the approach developed by Chinn and Prasad (2003), we use data for 61 countries during 1982-2003 to estimate panel regression models for the ratio of the current account balance to GDP. We find that a model that includes as its explanatory variables the standard determinants of current accounts proposed in the ...
Working Paper
Precautionary savings and the wealth distribution with illiquid durables
We study the role an illiquid durable consumption good plays in determining the level of precautionary savings and the distribution of wealth in a standard Aiyagari model (i.e. a model with heterogeneous agents, idiosyncratic uncertainty, and borrowing constraints). Transactions costs induce an inaction region over which the durable stock and the associated user cost are not adjusted in response to changes in income, increasing, on average, the volatility of non-durable consumption. The volatility of total consumption is then a function of the share of the durable good in the utility function ...
Working Paper
The Corporate Saving Glut in the Aftermath of the Global Financial Crisis
We examine the increase in the net lending (saving minus investment) of nonfinancial corporations in the years preceding and especially following the Global Financial Crisis (GFC). We consider whether this increase in net lending is an endogenous reflection of the current weak pace of growth or an outcome of other factors, such as firms' desire to cut investment and hoard assets, and thus an exogenous drag on growth. Looking at G7 economies, we find that the fall in corporate investment during the GFC was in line with historical norms, given the path of GDP growth, interest rates, profits, ...
Discussion Paper
The Dollar in the U.S. International Transactions (USIT) Model
The dollar's 20 percent climb against a broad index of foreign currencies since the middle of 2014 has led to an increased focus on how dollar fluctuations affect the U.S. economy. This note provides further detail on the structure and estimation of the trade block of the USIT model. In the context of the model, we present the estimated effect of a 10 percent dollar appreciation on U.S. trade flows and trade prices. We conclude with an assessment of the model's performance since the dollar began its steep appreciation in the summer of 2014.
Discussion Paper
Do Low Interest Rates Decrease Commodity Price Volatility?
Commodity prices have been volatile over the past decade relative to the 1990s. Over the same period interest rates have also been relatively low, suggesting a possible connection.
Working Paper
Productivity shocks, habits, and the current account
Empirical work regarding Intertemporal Current Account (ICA) models has centered around two distinct testing methodologies, present value tests and a productivity shock approach as formulated in Glick and Rogoff (1995). In previous work, Gruber (2001), I have tested an ICA model that allows for habits in aggregate consumption via the present value method. This paper applies the alternative Glick and Rogoff style approach to testing the model. The benefits of doing such are an ability to separate country-specific from worldwide output changes, a distinction of considerable importance, as well ...
Working Paper
Do differences in financial development explain the global pattern of current account imbalances?
This paper addresses the popular view that differences in financial development explain the pattern of global current account imbalances. One strain of thinking explains the net flow of capital from developing to industrial economies on the basis of the industrial economies' more advanced financial systems and correspondingly more attractive assets. A related view addresses why the United States has attracted the lion's share of capital flows from developing to industrial economies; it stresses the exceptional depth, breadth, and safety of U.S. financial markets. ; In this paper we ...
Working Paper
Fiscal positions and government bond yields in OECD countries
We examine the impact of fiscal positions, both the level of debt and the fiscal balance, on long-term government bond yields in the OECD. In order to control for the endogenity of fiscal positions to the business cycle we utilize forward projections of fiscal positions from the OECD's Economic Outlook. In a panel regression over the period from 1988 to 2007, we find a robust and significant effect of fiscal performance on long-term bond yields. Our estimates imply that the marginal effect of the projected deterioration of fiscal positions associated with the recent financial crisis is to add ...
Working Paper
Where are global and U.S. trade heading in the aftermath of the trade collapse: issues and alternative scenarios
Global and U.S. trade declined dramatically in the wake of the global financial crisis in late 2008 and early 2009. The subsequent recovery in trade, while vigorous at first, gradually lost momentum in 2010. Against this backdrop, this paper explores the prospects for global and U.S. trade in the medium term. We develop a unified empirical framework ? an error correction model ? that exploits the cointegrating relationship between trade and economic activity. The model allows us to juxtapose several scenarios with different assumptions about the strength of GDP growth going forward and the ...
