Capital Flows, Consumption Booms and Asset Bubbles: A Behavioural Alternative to the Savings Glut Hypothesis

David Laibson · Johanna Möllerström

26 citations0/0 files storedNational Bureau of Economic Research

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Global Financial Crisis and Policies Monetary Policy and Economic Impact Economic Theory and Policy

Abstract

Bernanke (2005) hypothesized that a "global savings glut" was causing large trade imbalances.However, we show that the global savings rates did not show a robust upward trend during the relevant period.Moreover, if there had been a global savings glut there should have been a large investment boom in the countries that imported capital.Instead, those countries experienced consumption booms.National asset bubbles explain the international imbalances.The bubbles raised consumption, resulting in large trade deficits.In a sample of 18 OECD countries plus China, movements in home prices alone explain half of the variation in trade deficits.

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1999Has the U.S. Economy Become More Stable? A Bayesian Approach Based on a Markov-Switching Model of the Business Cycle 2001The Long and Large Decline in U.S. Output Volatility 2008Housing supply and housing bubbles 2005International Financial Adjustment 2010Animal Spirits 2004Recent U.S. Macroeconomic Stability: Good Policies, Good Practices, or Good Luck?2003Has the Business Cycle Changed? Evidence and Explanations 2008Monetary Policy and Stock Market Boom-Bust Cycles

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