Principal Investigator Ricardo Caballero
The global economy has been characterized in recent years by striking imbalances in capital flows, a continuous flow of capital from poorer countries to richer ones, volatile asset markets, several “speculative bubbles” that have driven asset prices up and then burst, and historically low real interest rates. A variety of explanations have been advanced for these disparate phenomena. But a new paper by MIT Economist Ricardo Caballero, building on his joint work with several other MIT economists, has a simple explanation for all of them: a shortage of global assets. The world economy is saving as always, but there are not enough assets in which to invest this savings.