European Economic Association & Econometric Society

This paper aims to build a two-country deterministic growth framework with overlapping generations to investigate the macroeconomic effects of global imbalances that originate from forced saving in one country. This allows us to study the existence of a dynamic equilibrium with global imbalances, the impact on the world interest rate, and the short-run and long-run welfare implications on the young and old generations in both countries. In particular, we show that global imbalances worsen the welfare of the young generations of both countries in the short run and can offset the potential gain of the international integration of capital markets.