CAPITAL FLOW SURGES AS BUBBLES: BEHAVIORAL FINANCE AND MCKINNON’S OVER-BORROWING SYNDROME EXTENDED

Levan Efremidze, John Rutledge and Thomas D. Willett
Additional contact information
Levan Efremidze: Claremont Institute for Economic Policy Studies, Claremont Graduate University, Claremont, CA 91711, USA†Graziadio School of Business and Management, Pepperdine University, Malibu, CA 90263, USA
John Rutledge: Claremont Institute for Economic Policy Studies, Claremont Graduate University, Claremont, CA 91711, USA
Thomas D. Willett: Claremont Institute for Economic Policy Studies, Claremont Graduate University, Claremont, CA 91711, USA§Claremont McKenna College, Claremont, CA 91711, USA

The Singapore Economic Review (SER), 2016, vol. 61, issue 02, 1-27

Abstract: This paper explores how behavioral finance and complexity economics, along with imperfect information, faulty mental models and perverse incentive structures can cast light on the factors that generate the international capital flow surges and sudden stops that McKinnon described as the over-borrowing syndrome. While there has been a great deal of empirical research on this topic in recent years, there has been much less theoretical analysis of why these flows too often behave in such a volatile manner. Developing a better understanding of the forces driving capital flows should help us identify situations where capital flow surges are particularly likely to end in costly sudden stops and help policy makers decide how best to respond to such flows.

Keywords: Capital flow surges; sudden stops; over-borrowing syndrome; behavioral finance; complexity economics; mental models; bubbles (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0217590816400233
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:serxxx:v:61:y:2016:i:02:n:s0217590816400233

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0217590816400233

Access Statistics for this article

The Singapore Economic Review (SER) is currently edited by Euston Quah

More articles in The Singapore Economic Review (SER) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().