An Analytical, Intertemporal, Three-Country Model of Global Imbalances in a Deleveraging World

Abstract:

We present a simple, microfounded, and intertemporal, model of global imbalances, and extend this to the case of three countries. We follow Blanchard and Milesi Ferretti (2011) in using this model to reveal the effects of a zero bound to world interest rates, in both the two-country and three-country versions of the model. We then discuss the global effects of deleveraging in one region of the world.