Financial Intermediation, International Risk Sharing, and Reserve Currencies
Matteo Maggiori ()
American Economic Review, 2017, vol. 107, issue 10, 3038-71
I model the equilibrium risk sharing between countries with varying financial development. The most financially developed country takes greater risks because its financial intermediaries deal with funding problems better. In good times, the more financially developed country consumes more and runs a trade deficit financed by the higher financial income that it earns as compensation for taking greater risk. During global crises, it suffers heavier losses. Its currency emerges as the reserve currency because it appreciates during crises, thus providing a good hedge. I provide evidence that financial net worth plays a crucial role in understanding this asymmetric risk sharing.
JEL-codes: E44 F14 F32 G01 G15 G21 (search for similar items in EconPapers)
Note: DOI: 10.1257/aer.20130479
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Working Paper: Financial Intermediation, International Risk Sharing, and Reserve Currencies (2013)
Working Paper: Financial Intermediation, International Risk Sharing, and Reserve Currencies (2012)
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