Economics, Econometrics and Finance
4 years ago

Global Imbalances Lead to Low Interest Rates and Economic Shifts

American Economic Review
An Equilibrium Model of “Global Imbalances” and Low Interest Rates
Ricardo J. Caballero, Emmanuel Farhi, Pierre‐Olivier Gourinchas

Paper Summary

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The article explains why the US has been borrowing a lot of money, why interest rates are low, and why US assets are popular globally. It suggests that different regions have different abilities to make money from investments, which leads to these economic trends. The model used in the article also helps explain why exchange rates and foreign investments have been behaving the way they have.