The Demand for Liquid Assets, Corporate Saving, and Global Imbalances
47 Pages Posted: 1 Feb 2013
Date Written: December 2012
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.
Keywords: Capital fl ows, Credit constraints, Global imbalances
JEL Classification: E22, F21, F41, F43
Suggested Citation: Suggested Citation
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