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Discussion Paper Details

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Title: Corporate Saving in Global Rebalancing

Author(s): Philippe Bacchetta and Kenza Benhima

Publication Date: June 2014

Keyword(s): Capital Flows, Credit Constraints, Financial Crisis and Global Imbalances

Programme Area(s): International Macroeconomics

Abstract: In this paper, we examine theoretically how corporate saving in emerging markets is contributing to global rebalancing. We consider a two-country dynamic general equilibrium model, based on Bacchetta and Benhima (2014), with a Developed and an Emerging country. Firms need to save in liquid assets to finance their production projects, especially in the Emerging country. In this context, we examine the impact of a credit crunch in the Developed country and of a growth slowdown in both countries. These three shocks imply smaller global imbalances and a positive output comovement, but have a different impact on interest rates. Contrary to common wisdom, a slowdown in the Emerging market implies a trade balance improvement in the Developed country.

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Bibliographic Reference

Bacchetta, P and Benhima, K. 2014. 'Corporate Saving in Global Rebalancing'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10012