Capital Flows and Asset Prices
Gianluca Benigno and
CEP Discussion Papers from Centre for Economic Performance, LSE
After liberalizing international transactions of financial assets, many countries experience large swings in asset prices, capital flows, and aggregate production. This paper studies how the adjustment to capital account liberalization depends upon the degree of development of a domestic financial system, and why the economy with an underdeveloped financial system may be vulnerable to shocks to the domestic and foreign finance. We construct a model of a small open economy in which it is difficult to enforce debtors to repay their debts unless the debts are secured by collateral, and assets usable as collateral for international borrowing are more restricted than domestic borrowing.
Keywords: capital flows; asset prices; domestic and international borrowing constraints (search for similar items in EconPapers)
JEL-codes: F32 F37 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-opm
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Chapter: Capital Flows and Asset Prices (2009)
Working Paper: Capital flows and asset prices (2009)
Working Paper: Capital flows and asset prices (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp0921
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