Globalization, Gluts, Innovation or Irrationality What Explains the Easy Financing of the U. S. Current Account Deficit? |
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| Author:
| Balakrishnan, Ravi
Tulin, Volodymyr
Bayoumi, Tamim |
| Series title: | IMF Working Papers |
| ISBN: | 978-1-4519-1177-0 |
| Publication Date: | Jul 2007 |
| Publisher: | International Monetary Fund
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| Book Format: | Ebook |
| List Price: | Contact Supplier contact
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Book Description:
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This paper examines the roles of U.S. financial innovation, financial globalization, and the savings glut hypothesis in explaining the rise in U.S. external debt, first in a portfolio balance model, and then empirically. Perhaps surprisingly, financial deepening and falling home bias in industrialized countries explain a large share of external financing. The savings glut hypothesis (including difficult-to-track petrodollar recycling) and U.S. financial innovation are also important,...
More DescriptionThis paper examines the roles of U.S. financial innovation, financial globalization, and the savings glut hypothesis in explaining the rise in U.S. external debt, first in a portfolio balance model, and then empirically. Perhaps surprisingly, financial deepening and falling home bias in industrialized countries explain a large share of external financing. The savings glut hypothesis (including difficult-to-track petrodollar recycling) and U.S. financial innovation are also important, in part as a cause of declining home bias in industrialized countries. The latter underscores the importance of not looking at these factors in isolation, but rather as a constellation of forces that can be self-reinforcing.