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Globalization, Gluts, Innovation or Irrationality :, What Explains the Easy Financing of the U.S. Current Account Deficit?, Ravi Balakrishnan, Volodymyr Tulin, Tamim Bayoumi

This paper examines the roles of U.S. financial innovation, financial globalization, and the savings glut hypothesis in explaining the rise in U.S. external debt, first in a portfolio balance model, and then empirically. Perhaps surprisingly, financial deepening and falling home bias in industrialized countries explain a large share of external financing. The savings glut hypothesis (including difficult-to-track petrodollar recycling) and U.S. financial innovation are also important, in part as a cause of declining home bias in industrialized countries. The latter underscores the importance of not looking at these factors in isolation, but rather as a constellation of forces that can be self-reinforcing
Table Of Contents
Contents; I. Introduction; Figures; 1. Financing of the Current Account Deficit; II. Portfolio Balance; A. The Basic Model; B. Rising Financial Globalization and Declining Home Bias; C. Global Savings Glut; D. Financial Innovation; Tables; 1. Impact of Different Explanations of Current Account Financing on Yields and Asset Allocation; III. Impact on Borrowing Costs; 2. Selected Yields on Long-Term Government Securities; IV. Impact on Asset Allocation: Considerations in Decomposing the Rise in U.S. External Debt; 3. Selected Nonfinancial Long-Term Corporate Credit Spreads; A. Regional Picture
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (41 p.)
Specific Material Designation
Form Of Item

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