Vipin Arora

Reconstructing the Savings Glut: The Global Implications of Asian Excess Saving

East Asian, and primarily Chinese and Japanese, excess saving has been comparatively large and controversial since the 1980s. That it has contributed to the decline in the global “natural” rate of interest is consistent with Bernanke’s much debated “savings glut” hypothesis for the decade after 1998, empirical explorations of which have proved unconvincing. In this paper it is argued that the comparatively integrated global market for long bonds is suggestive of trends in the “world” natural rate and that the longer term evidence supports a leading role for Asia’s contribution to the expansion of ex ante global saving in explaining the declining trend in real long yields. Evidence is presented that trends in US 10 year bond yields are indeed representative of those in the “world” natural rate. The relationship between these yields and excess saving in China and Japan is then explored using a VECM that accounts for US monetary policy. The results support a negative long term relationship between 10-year yields and the current account surpluses of China and Japan. Projections using the same model then suggest that a feasible range of future pathways for those current accounts could cause the path of long rates to deviate by 330 basis points over the next decade.

Energy Consumption and Economic Growth in the United States

We study the relationship between energy consumption and real GDP in the United States using a multivariate time-varying model [1973Q1-2014Q1]. We show that the combination of disaggregation into specific fuels and time variation gives more nuanced results than the alternatives for the U.S. Specifically, we find that the Granger causal relationship between total energy and real U.S. GDP is bi-directional through much of the 1990s (the feedback hypothesis) but uni-directional running from real U.S. GDP to energy consumption in the 2000s (the conservation hypothesis). Similar pattern of changes was observed in the causal relationship between coal consumption and real U.S. GDP. Oil consumption largely supports the feedback hypothesis, especially after 2009. Natural gas consumption shows a brief period supporting the conservation hypothesis in the early-to-mid 2000s, but primarily supports the neutrality hypothesis that natural gas consumption and economic growth are independent.

Disaggregating Electricity Generation Technologies in CGE Models

We illustrate the importance of disaggregating electricity generation when considering responses to environmental policies. We begin by reviewing various approaches to electric sector modelling in Computable General Equilibrium (CGE) models, and then clarify and expand upon the structure and calibration of the “technology bundle” approach. We also simulate the proposed U.S. Clear Power Plan and show how a disaggregate electricity sector can change results. Our simulations indicate that both the ability to switch between generation technologies and the manner of aggregation in electricity production are important for quantifying the economic costs of the plan.