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Title: The Demand for Liquid Assets, Corporate Saving, and Global Imbalances

Author(s): Philippe Bacchetta and Kenza Benhima

Publication Date: December 2012

Keyword(s): Capital flows, Credit constraints and Global imbalances

Programme Area(s): International Macroeconomics

Abstract: In the recent decade, capital outflows from emerging economies, in the form of a demand for liquid assets, have played a key role in the context of global imbalances. In this paper, we model the demand for liquid assets by firms in a dynamic open-economy macroeconomic model. We find that the implications of this model are very different from standard models, because the demand for foreign bonds is a complement to domestic investment rather than a substitute. We show that this complementarity is at work when an emerging economy is on its convergence path or when it has a higher TFP growth rate. This framework is consistent with global imbalances and with a number of stylized facts such as high corporate saving rates in high-growth, high-investment, emerging countries.

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Bibliographic Reference

Bacchetta, P and Benhima, K. 2012. 'The Demand for Liquid Assets, Corporate Saving, and Global Imbalances'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9268