Saving Disparity and the U.S. Current Account Deficit

Chamberlain, Thomas E.

doi:10.2139/ssrn.834184

Cited by 22 publications

(42 citation statements)

References 14 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…The second type of argument is based on a "global savings glut", global imbalances in capital flows and the deregulatory environment (Bernanke, 2005;Obstfeld and Rogoff, 2009;Justiniano et al, 2014;Ferrero, 2015;Favilukis et al, 2012;Aizenman and Jinjarak, 2009). The basic idea behind these arguments is that there was a search for higher yield worldwide, especially accumulated in the United States (US) financial markets.…”

Section: Literature Reviewmentioning

confidence: 99%

See 1 more Smart Citation

Investor bias, risk and price volatility

Polat

2022

JES

View full text Add to dashboard Cite

PurposeThis study proposes a framework based on salience theory and shows that focusing on one type of risk (idiosyncratic or systemic) can explain overpricing of securities ex ante, and resales at low prices during crisis periods.Design/methodology/approachThe author consider an overlapping generations (OLG) model where each generation lives for two periods and there is no population growth. Agents (investors) start their lives with an endowment W > 0 and have mean-variance utility. They invest their endowment when young and consume when old. Each period, the young investors optimally choose their portfolio from different risky assets acquired from the old generation, all assumed to be in fixed supply.FindingsThe author show that investor salience bias can explain excess volatility of asset prices and the resulting fire-sales in periods of financial turmoil. A change in salience – from one component (idiosyncratic) to the other (systemic) – will generate excess volatility. Interestingly, higher risk aversion generally exacerbates the excess volatility of prices. Moreover, the model predicts that if a big systemic shock hits the financial system, due to salience bias the price of systemic assets falls sharply. This relates to the observed fire-sales of assets during the global financial crisis.Practical implicationsThe proposed model and results suggest that there may be a scope for intervention in financial markets during turbulences. In terms of ex ante policies the study suggests that investors and regulator should use better risk assessment technologies.Originality/valueThis is the first study constructing a tractable model based on the argument that investor salience may exacerbate the excess volatility of prices during financial downturns. The author relate salience to two types of risk; idiosyncratic and systemic and assume that investors' risk perception is biased towards the type of risk that is currently salient based on prior beliefs or past data. The author show that the diversification fallacy of the precrisis period, where seemingly safe assets were overpriced, can be explained by agents overweighing idiosyncratic risk and ignoring systemic risk.

show abstract

Section: Literature Reviewmentioning

confidence: 99%

“…The second type of argument is based on a “global savings glut”, global imbalances in capital flows and the deregulatory environment (Bernanke, 2005; Obstfeld and Rogoff, 2009; Justiniano et al. , 2014; Ferrero, 2015; Favilukis et al.…”

Section: Introductionmentioning

confidence: 99%

Investor bias, risk and price volatility

Polat

2022

JES

View full text Add to dashboard Cite

show abstract

“…In general, many economists grappled with this question of increasing debt and debt-related crises before, and they have developed various debt and financial crises hypotheses and theories. To have a comprehensive understanding of debt crisis hypotheses and theories it is noteworthy to mention Wicksell's (1898Wicksell's ( , 1906 financial crisis model, Hayek's (1929) financial crisis theory, Keynes's (1936) view on economic crises, Fisher's (1933Fisher's ( , 1935 economic crisis model, Warburton's (1966) financial crisis model, Friedman, and Schwartz's (1971) view on economic crises, Minsky's (1982Minsky's ( , 1992 financial instability hypothesis, behavioural economists' view of financial crises [Shiller, (2003[Shiller, ( , 2015 and McDonald, (2009)], Bernanke's (2005Bernanke's ( , 2015 global savings glut hypothesis, Summers's (2014Summers's ( , 2016 secular stagnation hypothesis. Additionally, many leading economists have researched extensively about systemic debt/financial crises even though they did not build their own crisis models.…”

Section: Introductionmentioning

confidence: 99%

Does systemic property cause the continuing accumulation of severe debt in developed economies?

Senanayake

Wimalaratana

David

2023

Sri Lanka Jnl Econ. Res.

View full text Add to dashboard Cite

Even developed economies experience continuing severe debt problems. Debt crises were an old phenomenon, but since the global financial crisis of 2008, economists began to pay renewed interest on the subject. Recent studies show that unsustainable financial conditions that exist may be the decisive macroeconomic challenge in the 21st century. Unsustainable financial conditions mean nothing other than the overwhelming debt and debt relations. In this paper, the authors question whether there could be an inherent fundamental systemic cause that leads to creating unsustainable debt bubbles when the basic economic activity of supply and demand takes place. Upon making a scientific inquiry on the said problem, by employing deductive methodology, this paper finds out that there exists an 'unavoidable inherent systemic contradiction' in the economic system that leads to creating unsustainable debt growth. Understanding this unique behaviour of any money-based exchange economic system (not limited to capitalism) is essential to device new macroeconomic policy tools bringing stability to the global economy.

show abstract

“…The Great Leveraging (Taylor, 2014) was a period where fast growth of credit hand in hand with rapid house price growth was observed amongst many peripheral European economies, Cuestas and Staehr (2017). The Global Financial Crisis after the Great Leveraging and the Global Savings Glut, along with low interest rates worldwide in the 2000s, led to the misallocation of foreign capital in high bubbling markets which exploded in 2008 after the Lehman Brothers crash in the US (Bernanke, 2005). In the most affected European countries, the so-called GIIPS (Greece, Ireland, Italy, Portugal and Spain), the housing market was boosted by an increase in private credit.…”

Section: Introductionmentioning

confidence: 99%

Credit-to-GDP ratios – non-linear trends and persistence: evidence from 44 OECD economies

Cuestas

Gil-Alana

Malmierca³

2022

JES

View full text Add to dashboard Cite

PurposeIn particular, in this article, the authors investigate the degree of persistence in the credit-to-gross domestic product (GDP) ratio in 44 Organisation for Economic Co-operation and Development (OECD) economies in the context of nonlinear deterministic trends.Design/methodology/approachThe authors use Chebyshev's polynomials in time, which allow us to model changes in the data in a smoother way than by structural breaks.FindingsThis study’s results indicate that approximately one-quarter of the series display non-linear structures, and only Argentina displays a mean reverting pattern.Research limitations/implicationsPolicy implications of the results obtained are discussed at the end of the manuscript.Originality/valueThe authors use an approach developed that allows for non-linear trends based on Chebyshev polynomials in time, with the residuals being fractionally integrated or integrated of order d, where d can be any real value.

show abstract

Saving Disparity and the U.S. Current Account Deficit

Cited by 22 publications

References 14 publications

Investor bias, risk and price volatility

Investor bias, risk and price volatility

Does systemic property cause the continuing accumulation of severe debt in developed economies?

Credit-to-GDP ratios – non-linear trends and persistence: evidence from 44 OECD economies

Contact Info

Product

Resources

About