Open AccessCapital Flows, Consumption Booms and Asset Bubbles: A Behavioural Alternative to the Savings Glut Hypothesis *
Author(s) -
Laibson David,
Mollerstrom Johanna
Publication year - 2010
Publication title -
the economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.683
H-Index - 160
eISSN - 1468-0297
pISSN - 0013-0133
DOI - 10.1111/j.1468-0297.2010.02363.x
Subject(s) - economics , boom , consumption (sociology) , global imbalances , asset (computer security) , monetary economics , current account , international economics , capital flows , investment (military) , china , exchange rate , geography , market economy , environmental science , social science , computer security , archaeology , environmental engineering , sociology , politics , computer science , law , political science , liberalization
Bernanke (2005) hypothesised 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.