Two Views of Global Equilibrium: Interest Rates ...

As a consequence US deficit can rise by more than 2% of GDP as a 3% fall of the real interest rates encourage US consumption. World Interest Rates RoW Saving/ US deficit Loss aversion constraint 3% 4.5% 0.01% Not binding 1 1 6% 4.5% 0.04% Not binding 1 1 12% 3.1% 1.2% Binding 1.03 0.98 18% 1.5% 2.5% Binding 1.07 0.97 Table 5. ................
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