Dissecting Chimerica: A Structural Decomposition of Global Imbalances

Orientador(a): Carlos Viana de Carvalho

In a speech to the Federal Reserve Board in 2005, chairman Ben Bernanke put forth the hypothesis of a Global Savings Glut to explain the recurring American current account deficits. According to him, the world was experiencing an excess of desired savings over desired investment, which drove capital flows to the United States and reduced global real interest rates. Building on the framework of Gertler (1999) and Ferrero (2010,0), this paper provides a structural decomposition of global capital flows in a 3-country global economy model with imperfect capital mobility, including the United States, the rest of the rich economies, and China. I find that differences in the stage of the demographic transition of each region and in social security systems help explain the flow of capital from China to the United States, compensating the differences in productivity growth, which would drive the flow in the opposite direction. Finally, I present a scenario for the trends of capital flows and real interest rates for the next decades.