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CIAO DATE: 2/5/2007
Global Imbalances and Low Interest Rates: An Equilibrium Model vs. A Disequilibrium Reality
Jeffrey Frankel
August 2006
Abstract
Caballero, Farhis & Gourinchas (2006) are motivated by three current properties of the world financial system:
• Fact 1: US current account deficits are large and rising.
• Fact 2: Long-term interest rates have been low since 2002.
• Fact 3: The share of US assets in world portfolios has been rising.
Fact 3 follows naturally from fact 1; Fact 2 is the real anomaly.
