The Demand for Liquid Assets, Corporate Saving, and Global Imbalances

Philippe Bacchetta and Kenza Benhima

Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie

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 flows; global imbalances; working capital; credit constraints (search for similar items in EconPapers)
JEL-codes: E22 F21 F41 F43 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2010-12
New Economics Papers: this item is included in nep-cba, nep-dge, nep-ifn, nep-mac and nep-opm
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Citations: View citations in EconPapers (37)

Forthcoming under the title "The Demand for Liquid Assets, Corporate Saving, and International Capital Flows", in: Journal of the European Economic Association

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Related works:
Working Paper: The Demand for Liquid Assets, Corporate Saving, and Global Imbalances (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:lau:crdeep:10.12

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