Global Financial Cycle and Liquidity Management

Olivier Jeanne and Damiano Sandri

No 27901, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We use a tractable model to show that emerging markets can protect themselves from the global financial cycle by expanding (rather than restricting) capital flows. This involves accumulating reserves when global liquidity is high to buy back domestic assets at a discount when global financial conditions tighten. Since the private sector does not internalize how this buffering mechanism reduces international borrowing costs, a social planner increases the size of capital flows beyond the laissez-faire equilibrium. The model also provides a role for foreign exchange intervention in less financially developed countries. The main predictions of the model are consistent with the data.

JEL-codes: F31 F32 F36 F38 (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-ifn and nep-mon
Note: IFM
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Citations: View citations in EconPapers (7)

Published as Olivier Jeanne, 2023. "Global financial cycle and liquidity management," Journal of International Economics, .
Published as Global Financial Cycle and Liquidity Management , Olivier Jeanne, Damiano Sandri. in NBER International Seminar on Macroeconomics 2022 , Forbes, Gourinchas, and Reis. 2023

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Related works:
Journal Article: Global financial cycle and liquidity management (2023)
Working Paper: Global financial cycle and liquidity management (2023)
Chapter: Global Financial Cycle and Liquidity Management (2022)
Working Paper: Global Financial Cycle and Liquidity Management (2020)
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