The purpose of this paper is to explore the global financial imbalances from a perspective on a precautionary savings motive. This study will be divided into theoretical analysis and empirical investigation. The theoretical derivation mainly follows the framework of Carroll and Jeanne (2008), which emphasizes the size of the individual precautionary motive (that is, the size of the net foreign assets held by individuals) will be related to their survival probability, unemployment probability and social insurance multiplier. Furthermore, to discuss the global financial imbalances, the precautionary motive framework is extended to a two-country general equilibrium model. As for the empirical analysis, this study calibrates the movements of the net foreign assets, using the parameter values in China and the United States. We expect that, when the degree of the insurance covering the uncertainty is relatively high, the precautionary saving will diminish, leading to a decrease in the country's net foreign asset positions and thereby a reduction of global financial imbalances. The policy implication of moderating global financial imbalances is that China can improve the social welfare policy to reduce world unemployment rate, ameliorating the U.S. current account deficits.
