The current global-imbalance literature (which explains why capital flows from poor to rich countries) cannot explain China’s foreign asset positions because capital cannot flow out of China under capital controls. A related but deeper puzzle that this literature fails to address is China’s...

China’s average household saving rate is one of the highest in the world. One popular view attributes the high saving rate to fast rising housing prices and other costs of living in China. This article uses simple economic logic to show that rising housing prices and living costs per se cannot...

Most empirical studies based on U.S. data suggest that the fiscal multiplier is less than 1 (e.g., Barro and Redlick, 2011). However, Keynes argued that the multiplier would be the largest when markets have failed to the greatest extent in coordinating economic activities (such as during the...

Large uninsured risk, severe borrowing constraints, and rapid income growth can create excessively high household saving rates and large current account surpluses for emerging economies. Therefore, the massive foreign-reserve buildups by China are not necessarily the intended out- come of any...

The current global-imbalance literature (which explains why capital ows from poor to rich countries) cannot explain China s foreign asset positions because capital cannot ow out of China under capital controls. A related but deeper puzzle that this literature fails to address is China s high...

Significant store-of-value demand for housing suggests a bubble that could burst, especially when both the household income growth rate and the savings rate start to decline and capital controls in China start to relax.