Credit Constraints and Growth in a Global Economy Discussion by - - PowerPoint PPT Presentation

Credit Constraints and Growth in a Global Economy

Discussion by Christopher Carroll

http://econ.jhu.edu/people/ccarroll/discussions/CreditConstrAndGrowth-Slides.pdf

Johns Hopkins University ccarroll@jhu.edu

NBER IFM Meetings Cambridge, MA July 2011

Theory Evidence This Paper What Might Work? Conclusion References Growth (Γ) and Saving (s)

Growth (Γ) and Saving (s)

History: Modigliani (1960s): Γ ⇒ s

Young people (savers) are richer Old people (dissavers) are poorer

(Tobin, 1967): Doesn’t work (quantitatively) ...

... unless growth is exclusively ‘cross-generational’

‘Cross-generational’: Workers in fast-growing country do not experience fast growth Agg growth comes from drastic rises in ‘starting wage’ After you’ve started work, your income doesn’t grow any faster

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References Growth (Γ) and Saving (s)

Growth (Γ) and Saving (s)

History: Modigliani (1960s): Γ ⇒ s

Young people (savers) are richer Old people (dissavers) are poorer

(Tobin, 1967): Doesn’t work (quantitatively) ...

... unless growth is exclusively ‘cross-generational’

‘Cross-generational’: Workers in fast-growing country do not experience fast growth Agg growth comes from drastic rises in ‘starting wage’ After you’ve started work, your income doesn’t grow any faster

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References Growth (Γ) and Saving (s)

Growth (Γ) and Saving (s)

History: Modigliani (1960s): Γ ⇒ s

Young people (savers) are richer Old people (dissavers) are poorer

(Tobin, 1967): Doesn’t work (quantitatively) ...

... unless growth is exclusively ‘cross-generational’

‘Cross-generational’: Workers in fast-growing country do not experience fast growth Agg growth comes from drastic rises in ‘starting wage’ After you’ve started work, your income doesn’t grow any faster

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References Growth (Γ) and Saving (s)

Growth (Γ) and Saving (s)

History: Modigliani (1960s): Γ ⇒ s

Young people (savers) are richer Old people (dissavers) are poorer

(Tobin, 1967): Doesn’t work (quantitatively) ...

... unless growth is exclusively ‘cross-generational’

‘Cross-generational’: Workers in fast-growing country do not experience fast growth Agg growth comes from drastic rises in ‘starting wage’ After you’ve started work, your income doesn’t grow any faster

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References Growth (Γ) and Saving (s)

Growth (Γ) and Saving (s)

History: Modigliani (1960s): Γ ⇒ s

Young people (savers) are richer Old people (dissavers) are poorer

(Tobin, 1967): Doesn’t work (quantitatively) ...

... unless growth is exclusively ‘cross-generational’

‘Cross-generational’: Workers in fast-growing country do not experience fast growth Agg growth comes from drastic rises in ‘starting wage’ After you’ve started work, your income doesn’t grow any faster

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References Growth (Γ) and Saving (s)

Growth (Γ) and Saving (s)

History: Modigliani (1960s): Γ ⇒ s

Young people (savers) are richer Old people (dissavers) are poorer

(Tobin, 1967): Doesn’t work (quantitatively) ...

... unless growth is exclusively ‘cross-generational’

‘Cross-generational’: Workers in fast-growing country do not experience fast growth Agg growth comes from drastic rises in ‘starting wage’ After you’ve started work, your income doesn’t grow any faster

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References Growth (Γ) and Saving (s)

Growth (Γ) and Saving (s)

History: Modigliani (1960s): Γ ⇒ s

Young people (savers) are richer Old people (dissavers) are poorer

(Tobin, 1967): Doesn’t work (quantitatively) ...

... unless growth is exclusively ‘cross-generational’

‘Cross-generational’: Workers in fast-growing country do not experience fast growth Agg growth comes from drastic rises in ‘starting wage’ After you’ve started work, your income doesn’t grow any faster

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References Growth (Γ) and Saving (s)

Growth (Γ) and Saving (s)

History: Modigliani (1960s): Γ ⇒ s

Young people (savers) are richer Old people (dissavers) are poorer

(Tobin, 1967): Doesn’t work (quantitatively) ...

... unless growth is exclusively ‘cross-generational’

‘Cross-generational’: Workers in fast-growing country do not experience fast growth Agg growth comes from drastic rises in ‘starting wage’ After you’ve started work, your income doesn’t grow any faster

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References Growth (Γ) and Saving (s)

Growth (Γ) and Saving (s)

History: Modigliani (1960s): Γ ⇒ s

Young people (savers) are richer Old people (dissavers) are poorer

(Tobin, 1967): Doesn’t work (quantitatively) ...

... unless growth is exclusively ‘cross-generational’

‘Cross-generational’: Workers in fast-growing country do not experience fast growth Agg growth comes from drastic rises in ‘starting wage’ After you’ve started work, your income doesn’t grow any faster

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References Growth (Γ) and Saving (s)

The Problem: The Human Wealth Effect

In infinite horizon partial-equilibrium CEQ model: ct =

total wealth

• (bt + ht) κ

(1) where if current income is pt then human wealth ht is ht ≈ pt r − γ

• (2)

Suppose r = 0.05. Then if growth rises from γ = 0.02 to γ = 0.03, h goes from 1/0.03 ≈ 33 to 1/0.02 = 50 times current income. ⇒ Human wealth effect is HUGE

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References Growth (Γ) and Saving (s)

2- or 3- Period OLG vs Infinite Horizon

(Summers, 1981): Realistic OLG Model Is Close To Infinite Horizon

‘Realistic:’ Not 2- or 3-period life

Continuous time, or, say, 60-period life

Key point: HW effect is big within middle-age group It’s cheating to hide this effect by using a 2- or 3-period model

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References Growth (Γ) and Saving (s)

2- or 3- Period OLG vs Infinite Horizon

(Summers, 1981): Realistic OLG Model Is Close To Infinite Horizon

‘Realistic:’ Not 2- or 3-period life

Continuous time, or, say, 60-period life

Key point: HW effect is big within middle-age group It’s cheating to hide this effect by using a 2- or 3-period model

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References Growth (Γ) and Saving (s)

2- or 3- Period OLG vs Infinite Horizon

(Summers, 1981): Realistic OLG Model Is Close To Infinite Horizon

‘Realistic:’ Not 2- or 3-period life

Continuous time, or, say, 60-period life

Key point: HW effect is big within middle-age group It’s cheating to hide this effect by using a 2- or 3-period model

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References Growth (Γ) and Saving (s)

2- or 3- Period OLG vs Infinite Horizon

(Summers, 1981): Realistic OLG Model Is Close To Infinite Horizon

‘Realistic:’ Not 2- or 3-period life

Continuous time, or, say, 60-period life

Key point: HW effect is big within middle-age group It’s cheating to hide this effect by using a 2- or 3-period model

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References Growth (Γ) and Saving (s)

2- or 3- Period OLG vs Infinite Horizon

(Summers, 1981): Realistic OLG Model Is Close To Infinite Horizon

‘Realistic:’ Not 2- or 3-period life

Continuous time, or, say, 60-period life

Key point: HW effect is big within middle-age group It’s cheating to hide this effect by using a 2- or 3-period model

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Context

(Carroll & Summers, 1991)

none of growth is ‘cross-generational’ Even if all were ‘cross-generational,’ still doesn’t work

Lowest-saving age-group in Japan saved 25 percent Highest-saving age-group in U.S. saved 10 percent No reallocation by age can boost U.S. to Japanese rates

(Carroll & Weil, 1994): Γ ↑ Granger-Causes s ↑

Positive: Japan, Korea, Hong Kong, Singapore, Taiwan, Botswana, Mauritius ... Negative: Post 1974 OECD, U.S. Out-of-sample: Japan post-1990 Theory:

Constraints can’t explain it

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Context

(Carroll & Summers, 1991)

none of growth is ‘cross-generational’ Even if all were ‘cross-generational,’ still doesn’t work

Lowest-saving age-group in Japan saved 25 percent Highest-saving age-group in U.S. saved 10 percent No reallocation by age can boost U.S. to Japanese rates

(Carroll & Weil, 1994): Γ ↑ Granger-Causes s ↑

Positive: Japan, Korea, Hong Kong, Singapore, Taiwan, Botswana, Mauritius ... Negative: Post 1974 OECD, U.S. Out-of-sample: Japan post-1990 Theory:

Constraints can’t explain it

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Context

(Carroll & Summers, 1991)

none of growth is ‘cross-generational’ Even if all were ‘cross-generational,’ still doesn’t work

Lowest-saving age-group in Japan saved 25 percent Highest-saving age-group in U.S. saved 10 percent No reallocation by age can boost U.S. to Japanese rates

(Carroll & Weil, 1994): Γ ↑ Granger-Causes s ↑

Positive: Japan, Korea, Hong Kong, Singapore, Taiwan, Botswana, Mauritius ... Negative: Post 1974 OECD, U.S. Out-of-sample: Japan post-1990 Theory:

Constraints can’t explain it

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Context

(Carroll & Summers, 1991)

none of growth is ‘cross-generational’ Even if all were ‘cross-generational,’ still doesn’t work

Lowest-saving age-group in Japan saved 25 percent Highest-saving age-group in U.S. saved 10 percent No reallocation by age can boost U.S. to Japanese rates

(Carroll & Weil, 1994): Γ ↑ Granger-Causes s ↑

Positive: Japan, Korea, Hong Kong, Singapore, Taiwan, Botswana, Mauritius ... Negative: Post 1974 OECD, U.S. Out-of-sample: Japan post-1990 Theory:

Constraints can’t explain it

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Context

(Carroll & Summers, 1991)

none of growth is ‘cross-generational’ Even if all were ‘cross-generational,’ still doesn’t work

Lowest-saving age-group in Japan saved 25 percent Highest-saving age-group in U.S. saved 10 percent No reallocation by age can boost U.S. to Japanese rates

(Carroll & Weil, 1994): Γ ↑ Granger-Causes s ↑

Positive: Japan, Korea, Hong Kong, Singapore, Taiwan, Botswana, Mauritius ... Negative: Post 1974 OECD, U.S. Out-of-sample: Japan post-1990 Theory:

Constraints can’t explain it

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Context

(Carroll & Summers, 1991)

none of growth is ‘cross-generational’ Even if all were ‘cross-generational,’ still doesn’t work

Lowest-saving age-group in Japan saved 25 percent Highest-saving age-group in U.S. saved 10 percent No reallocation by age can boost U.S. to Japanese rates

(Carroll & Weil, 1994): Γ ↑ Granger-Causes s ↑

Positive: Japan, Korea, Hong Kong, Singapore, Taiwan, Botswana, Mauritius ... Negative: Post 1974 OECD, U.S. Out-of-sample: Japan post-1990 Theory:

Constraints can’t explain it

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Context

(Carroll & Summers, 1991)

none of growth is ‘cross-generational’ Even if all were ‘cross-generational,’ still doesn’t work

Lowest-saving age-group in Japan saved 25 percent Highest-saving age-group in U.S. saved 10 percent No reallocation by age can boost U.S. to Japanese rates

(Carroll & Weil, 1994): Γ ↑ Granger-Causes s ↑

Positive: Japan, Korea, Hong Kong, Singapore, Taiwan, Botswana, Mauritius ... Negative: Post 1974 OECD, U.S. Out-of-sample: Japan post-1990 Theory:

Constraints can’t explain it

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Context

(Carroll & Summers, 1991)

none of growth is ‘cross-generational’ Even if all were ‘cross-generational,’ still doesn’t work

Lowest-saving age-group in Japan saved 25 percent Highest-saving age-group in U.S. saved 10 percent No reallocation by age can boost U.S. to Japanese rates

(Carroll & Weil, 1994): Γ ↑ Granger-Causes s ↑

Positive: Japan, Korea, Hong Kong, Singapore, Taiwan, Botswana, Mauritius ... Negative: Post 1974 OECD, U.S. Out-of-sample: Japan post-1990 Theory:

Constraints can’t explain it

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Context

(Carroll & Summers, 1991)

none of growth is ‘cross-generational’ Even if all were ‘cross-generational,’ still doesn’t work

Lowest-saving age-group in Japan saved 25 percent Highest-saving age-group in U.S. saved 10 percent No reallocation by age can boost U.S. to Japanese rates

(Carroll & Weil, 1994): Γ ↑ Granger-Causes s ↑

Positive: Japan, Korea, Hong Kong, Singapore, Taiwan, Botswana, Mauritius ... Negative: Post 1974 OECD, U.S. Out-of-sample: Japan post-1990 Theory:

Constraints can’t explain it

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Context

(Carroll & Summers, 1991)

none of growth is ‘cross-generational’ Even if all were ‘cross-generational,’ still doesn’t work

Lowest-saving age-group in Japan saved 25 percent Highest-saving age-group in U.S. saved 10 percent No reallocation by age can boost U.S. to Japanese rates

(Carroll & Weil, 1994): Γ ↑ Granger-Causes s ↑

Positive: Japan, Korea, Hong Kong, Singapore, Taiwan, Botswana, Mauritius ... Negative: Post 1974 OECD, U.S. Out-of-sample: Japan post-1990 Theory:

Constraints can’t explain it

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Context

(Carroll & Summers, 1991)

none of growth is ‘cross-generational’ Even if all were ‘cross-generational,’ still doesn’t work

Lowest-saving age-group in Japan saved 25 percent Highest-saving age-group in U.S. saved 10 percent No reallocation by age can boost U.S. to Japanese rates

(Carroll & Weil, 1994): Γ ↑ Granger-Causes s ↑

Positive: Japan, Korea, Hong Kong, Singapore, Taiwan, Botswana, Mauritius ... Negative: Post 1974 OECD, U.S. Out-of-sample: Japan post-1990 Theory:

Constraints can’t explain it

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Context

(Carroll & Summers, 1991)

none of growth is ‘cross-generational’ Even if all were ‘cross-generational,’ still doesn’t work

Lowest-saving age-group in Japan saved 25 percent Highest-saving age-group in U.S. saved 10 percent No reallocation by age can boost U.S. to Japanese rates

(Carroll & Weil, 1994): Γ ↑ Granger-Causes s ↑

Positive: Japan, Korea, Hong Kong, Singapore, Taiwan, Botswana, Mauritius ... Negative: Post 1974 OECD, U.S. Out-of-sample: Japan post-1990 Theory:

Constraints can’t explain it

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Context

(Carroll & Summers, 1991)

none of growth is ‘cross-generational’ Even if all were ‘cross-generational,’ still doesn’t work

Lowest-saving age-group in Japan saved 25 percent Highest-saving age-group in U.S. saved 10 percent No reallocation by age can boost U.S. to Japanese rates

(Carroll & Weil, 1994): Γ ↑ Granger-Causes s ↑

Positive: Japan, Korea, Hong Kong, Singapore, Taiwan, Botswana, Mauritius ... Negative: Post 1974 OECD, U.S. Out-of-sample: Japan post-1990 Theory:

Constraints can’t explain it

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

From 40 ‘Growth Acceleration Episodes’ Since 1960 ...

15 20 25 30 %GDP

• 6
• 4
• 2

t* +2 +4 +6 Saving Investment (Sandri, 2010)

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

How Do They Avoid the Human Wealth Problem?

3-period model with: Borrowing constraints for the young Zero income for the old ⇒ young can’t access human wealth, middle-aged don’t have any Objection: Even if we accept credit constraints for young, Zero income when ‘old’ is serious miscalibration

Most countries have old-age pensions

HW effect comes back with a vengeance if pensions replace, say, 50 percent of final wage

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

How Do They Avoid the Human Wealth Problem?

3-period model with: Borrowing constraints for the young Zero income for the old ⇒ young can’t access human wealth, middle-aged don’t have any Objection: Even if we accept credit constraints for young, Zero income when ‘old’ is serious miscalibration

Most countries have old-age pensions

HW effect comes back with a vengeance if pensions replace, say, 50 percent of final wage

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

How Do They Avoid the Human Wealth Problem?

3-period model with: Borrowing constraints for the young Zero income for the old ⇒ young can’t access human wealth, middle-aged don’t have any Objection: Even if we accept credit constraints for young, Zero income when ‘old’ is serious miscalibration

Most countries have old-age pensions

HW effect comes back with a vengeance if pensions replace, say, 50 percent of final wage

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

How Do They Avoid the Human Wealth Problem?

3-period model with: Borrowing constraints for the young Zero income for the old ⇒ young can’t access human wealth, middle-aged don’t have any Objection: Even if we accept credit constraints for young, Zero income when ‘old’ is serious miscalibration

Most countries have old-age pensions

HW effect comes back with a vengeance if pensions replace, say, 50 percent of final wage

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

How Do They Avoid the Human Wealth Problem?

3-period model with: Borrowing constraints for the young Zero income for the old ⇒ young can’t access human wealth, middle-aged don’t have any Objection: Even if we accept credit constraints for young, Zero income when ‘old’ is serious miscalibration

Most countries have old-age pensions

HW effect comes back with a vengeance if pensions replace, say, 50 percent of final wage

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

How Do They Avoid the Human Wealth Problem?

3-period model with: Borrowing constraints for the young Zero income for the old ⇒ young can’t access human wealth, middle-aged don’t have any Objection: Even if we accept credit constraints for young, Zero income when ‘old’ is serious miscalibration

Most countries have old-age pensions

HW effect comes back with a vengeance if pensions replace, say, 50 percent of final wage

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

How Do They Avoid the Human Wealth Problem?

3-period model with: Borrowing constraints for the young Zero income for the old ⇒ young can’t access human wealth, middle-aged don’t have any Objection: Even if we accept credit constraints for young, Zero income when ‘old’ is serious miscalibration

Most countries have old-age pensions

HW effect comes back with a vengeance if pensions replace, say, 50 percent of final wage

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

How Do They Avoid the Human Wealth Problem?

3-period model with: Borrowing constraints for the young Zero income for the old ⇒ young can’t access human wealth, middle-aged don’t have any Objection: Even if we accept credit constraints for young, Zero income when ‘old’ is serious miscalibration

Most countries have old-age pensions

HW effect comes back with a vengeance if pensions replace, say, 50 percent of final wage

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

How Do They Avoid the Human Wealth Problem?

3-period model with: Borrowing constraints for the young Zero income for the old ⇒ young can’t access human wealth, middle-aged don’t have any Objection: Even if we accept credit constraints for young, Zero income when ‘old’ is serious miscalibration

Most countries have old-age pensions

HW effect comes back with a vengeance if pensions replace, say, 50 percent of final wage

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

It’s a Quantitative Question

3-period OLG model is essentially qualitative Based on experience, I’m sure that many-period OLG model:

Can’t generate Γ ↑⇒ s ↑ No matter what assumptions about liq constrs you make

Bottom line: Liq constrs reduce the size of the negative effect from Γ to s But can’t generate a positive effect

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

It’s a Quantitative Question

3-period OLG model is essentially qualitative Based on experience, I’m sure that many-period OLG model:

Can’t generate Γ ↑⇒ s ↑ No matter what assumptions about liq constrs you make

Bottom line: Liq constrs reduce the size of the negative effect from Γ to s But can’t generate a positive effect

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

It’s a Quantitative Question

3-period OLG model is essentially qualitative Based on experience, I’m sure that many-period OLG model:

Can’t generate Γ ↑⇒ s ↑ No matter what assumptions about liq constrs you make

Bottom line: Liq constrs reduce the size of the negative effect from Γ to s But can’t generate a positive effect

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

It’s a Quantitative Question

3-period OLG model is essentially qualitative Based on experience, I’m sure that many-period OLG model:

Can’t generate Γ ↑⇒ s ↑ No matter what assumptions about liq constrs you make

Bottom line: Liq constrs reduce the size of the negative effect from Γ to s But can’t generate a positive effect

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

It’s a Quantitative Question

3-period OLG model is essentially qualitative Based on experience, I’m sure that many-period OLG model:

Can’t generate Γ ↑⇒ s ↑ No matter what assumptions about liq constrs you make

Bottom line: Liq constrs reduce the size of the negative effect from Γ to s But can’t generate a positive effect

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

It’s a Quantitative Question

3-period OLG model is essentially qualitative Based on experience, I’m sure that many-period OLG model:

Can’t generate Γ ↑⇒ s ↑ No matter what assumptions about liq constrs you make

Bottom line: Liq constrs reduce the size of the negative effect from Γ to s But can’t generate a positive effect

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

What Do We Learn from World General Equilibrium?

The big puzzle (for the standard model) is that Γ ↑⇒ s ↑ In reality, world GE effects come basically just from China 1.2 billion people is a lot! But China is behaving just like all the other countries So what do we learn from GE that we didn’t already know?

Global Saving Glut Global Imbalances ⇒ low world interest rates from 2004-

But developed world saving decline began in 1970s-80s: Way before GSG After productivity slowdown And empirical evidence says it’s partial eqbm

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

What Do We Learn from World General Equilibrium?

The big puzzle (for the standard model) is that Γ ↑⇒ s ↑ In reality, world GE effects come basically just from China 1.2 billion people is a lot! But China is behaving just like all the other countries So what do we learn from GE that we didn’t already know?

Global Saving Glut Global Imbalances ⇒ low world interest rates from 2004-

But developed world saving decline began in 1970s-80s: Way before GSG After productivity slowdown And empirical evidence says it’s partial eqbm

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

What Do We Learn from World General Equilibrium?

The big puzzle (for the standard model) is that Γ ↑⇒ s ↑ In reality, world GE effects come basically just from China 1.2 billion people is a lot! But China is behaving just like all the other countries So what do we learn from GE that we didn’t already know?

Global Saving Glut Global Imbalances ⇒ low world interest rates from 2004-

But developed world saving decline began in 1970s-80s: Way before GSG After productivity slowdown And empirical evidence says it’s partial eqbm

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

What Do We Learn from World General Equilibrium?

The big puzzle (for the standard model) is that Γ ↑⇒ s ↑ In reality, world GE effects come basically just from China 1.2 billion people is a lot! But China is behaving just like all the other countries So what do we learn from GE that we didn’t already know?

Global Saving Glut Global Imbalances ⇒ low world interest rates from 2004-

But developed world saving decline began in 1970s-80s: Way before GSG After productivity slowdown And empirical evidence says it’s partial eqbm

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

What Do We Learn from World General Equilibrium?

The big puzzle (for the standard model) is that Γ ↑⇒ s ↑ In reality, world GE effects come basically just from China 1.2 billion people is a lot! But China is behaving just like all the other countries So what do we learn from GE that we didn’t already know?

Global Saving Glut Global Imbalances ⇒ low world interest rates from 2004-

But developed world saving decline began in 1970s-80s: Way before GSG After productivity slowdown And empirical evidence says it’s partial eqbm

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

What Do We Learn from World General Equilibrium?

The big puzzle (for the standard model) is that Γ ↑⇒ s ↑ In reality, world GE effects come basically just from China 1.2 billion people is a lot! But China is behaving just like all the other countries So what do we learn from GE that we didn’t already know?

Global Saving Glut Global Imbalances ⇒ low world interest rates from 2004-

But developed world saving decline began in 1970s-80s: Way before GSG After productivity slowdown And empirical evidence says it’s partial eqbm

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

What Do We Learn from World General Equilibrium?

The big puzzle (for the standard model) is that Γ ↑⇒ s ↑ In reality, world GE effects come basically just from China 1.2 billion people is a lot! But China is behaving just like all the other countries So what do we learn from GE that we didn’t already know?

Global Saving Glut Global Imbalances ⇒ low world interest rates from 2004-

But developed world saving decline began in 1970s-80s: Way before GSG After productivity slowdown And empirical evidence says it’s partial eqbm

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

What Do We Learn from World General Equilibrium?

The big puzzle (for the standard model) is that Γ ↑⇒ s ↑ In reality, world GE effects come basically just from China 1.2 billion people is a lot! But China is behaving just like all the other countries So what do we learn from GE that we didn’t already know?

Global Saving Glut Global Imbalances ⇒ low world interest rates from 2004-

But developed world saving decline began in 1970s-80s: Way before GSG After productivity slowdown And empirical evidence says it’s partial eqbm

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

What Do We Learn from World General Equilibrium?

The big puzzle (for the standard model) is that Γ ↑⇒ s ↑ In reality, world GE effects come basically just from China 1.2 billion people is a lot! But China is behaving just like all the other countries So what do we learn from GE that we didn’t already know?

Global Saving Glut Global Imbalances ⇒ low world interest rates from 2004-

But developed world saving decline began in 1970s-80s: Way before GSG After productivity slowdown And empirical evidence says it’s partial eqbm

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

What Do We Learn from World General Equilibrium?

The big puzzle (for the standard model) is that Γ ↑⇒ s ↑ In reality, world GE effects come basically just from China 1.2 billion people is a lot! But China is behaving just like all the other countries So what do we learn from GE that we didn’t already know?

Global Saving Glut Global Imbalances ⇒ low world interest rates from 2004-

But developed world saving decline began in 1970s-80s: Way before GSG After productivity slowdown And empirical evidence says it’s partial eqbm

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Habit formation: (Carroll, Overland, & Weil, 2000)

Basically, makes c ‘sticky’ With rapid income growth, y races ahead of c

Precautionary saving: (Carroll & Jeanne, 2009)

Only works if big increase in uncertainty comes with Γ ↑

Political economy:

Easy to run budget surpluses when economy is growing fast Slow growth yields budget deficits

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Habit formation: (Carroll et al., 2000)

Basically, makes c ‘sticky’ With rapid income growth, y races ahead of c

Precautionary saving: (Carroll & Jeanne, 2009)

Only works if big increase in uncertainty comes with Γ ↑

Political economy:

Easy to run budget surpluses when economy is growing fast Slow growth yields budget deficits

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Habit formation: (Carroll et al., 2000)

Basically, makes c ‘sticky’ With rapid income growth, y races ahead of c

Precautionary saving: (Carroll & Jeanne, 2009)

Only works if big increase in uncertainty comes with Γ ↑

Political economy:

Easy to run budget surpluses when economy is growing fast Slow growth yields budget deficits

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Habit formation: (Carroll et al., 2000)

Basically, makes c ‘sticky’ With rapid income growth, y races ahead of c

Precautionary saving: (Carroll & Jeanne, 2009)

Only works if big increase in uncertainty comes with Γ ↑

Political economy:

Easy to run budget surpluses when economy is growing fast Slow growth yields budget deficits

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Habit formation: (Carroll et al., 2000)

Basically, makes c ‘sticky’ With rapid income growth, y races ahead of c

Precautionary saving: (Carroll & Jeanne, 2009)

Only works if big increase in uncertainty comes with Γ ↑

Political economy:

Easy to run budget surpluses when economy is growing fast Slow growth yields budget deficits

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Habit formation: (Carroll et al., 2000)

Basically, makes c ‘sticky’ With rapid income growth, y races ahead of c

Precautionary saving: (Carroll & Jeanne, 2009)

Only works if big increase in uncertainty comes with Γ ↑

Political economy:

Easy to run budget surpluses when economy is growing fast Slow growth yields budget deficits

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Habit formation: (Carroll et al., 2000)

Basically, makes c ‘sticky’ With rapid income growth, y races ahead of c

Precautionary saving: (Carroll & Jeanne, 2009)

Only works if big increase in uncertainty comes with Γ ↑

Political economy:

Easy to run budget surpluses when economy is growing fast Slow growth yields budget deficits

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Habit formation: (Carroll et al., 2000)

Basically, makes c ‘sticky’ With rapid income growth, y races ahead of c

Precautionary saving: (Carroll & Jeanne, 2009)

Only works if big increase in uncertainty comes with Γ ↑

Political economy:

Easy to run budget surpluses when economy is growing fast Slow growth yields budget deficits

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Habit formation: (Carroll et al., 2000)

Basically, makes c ‘sticky’ With rapid income growth, y races ahead of c

Precautionary saving: (Carroll & Jeanne, 2009)

Only works if big increase in uncertainty comes with Γ ↑

Political economy:

Easy to run budget surpluses when economy is growing fast Slow growth yields budget deficits

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

The facts are hard to explain in standard models Modigliani-style explanation does not work (quantitatively)

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

The facts are hard to explain in standard models Modigliani-style explanation does not work (quantitatively)

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

The facts are hard to explain in standard models Modigliani-style explanation does not work (quantitatively)

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

Carroll, C. D., & Jeanne, O. (2009, August). A tractable model of precautionary reserves, net foreign assets, or sovereign wealth

• funds. NBER Working Paper Number 15228. Available from

http://econ.jhu.edu/people/ccarroll/papers/cjSOE Carroll, C. D., Overland, J. R., & Weil, D. N. (2000, June). Saving and Growth with Habit Formation. American Economic Review, 90(3), 341–355. Available from http:// econ.jhu.edu/people/ccarroll/AERHabits.pdf (Available at http://econ.jhu.edu/people/ccarroll/ AERHabits.pdf) Carroll, C. D., & Summers, L. H. (1991). Consumption growth parallels income growth: Some new evidence. In

• B. Douglas Bernheim & John B. Shoven (Eds.), National

saving and economic performance. Chicago: Chicago University Press. (Available at http://econ.jhu.edu/

Coeurdacier, Guibaud, Jin Credit and Growth

Theory Evidence This Paper What Might Work? Conclusion References

people/ccarroll/papers/CParallelsY.pdf) Carroll, C. D., & Weil, D. N. (1994, June). Saving and Growth: A

• Reinterpretation. Carnegie-Rochester Conference Series on

Public Policy, 40, 133–192. (Available at http://econ.jhu.edu/people/ccarroll/ CarrollWeilSavingAndGrowth.pdf) Sandri, D. (2010). Growth and capital flows with risky

• entrepreneuship. IMF Working Paper No.10/37.

Summers, L. H. (1981). Capital taxation and accumulation in a life cycle growth model. American Economic Review, 71(4), 533–544. (Available at http://ideas.repec.org/a/aea/ aecrev/v71y1981i4p533-44.html) Tobin, J. (1967). Life cycle saving and balanced growth. In

• W. Fellner (Ed.), Ten economic studies in the tradition of

irving fisher (pp. 231–256). J. Wiley and Sons, Inc.

Coeurdacier, Guibaud, Jin Credit and Growth