Events

Economics Seminar

Authors:

• Keyu Jin
  London School of Economics

• Nicolas Coeurdacier
  SciencesPo and CEPR

• St´ephane Guibaud
  London School of Economics

In a period of rapid integration and accelerated growth in emerging markets, three striking trends have been (1) a divergence in the private saving rates of emerging markets and advanced economies, (2) large net capital outflows from emerging markets, and (3) a sustained decline in the world interest rate. This paper shows that a multi-country general-equilibrium model with household liquidity constraints – more severe in emerging markets – is able to account for all of the above facts. It focuses on explaining both the levels and the time series behavior of saving rates across countries, providing a theory on why saving rate responses to the common world interest rate can be markedly different across economies. Micro evidence on saving behavior across age groups in the US and China is broadly supportive of the model predictions.