Financial Markets and Financial Leverage in a Two-Country World-Economy

Simon Gilchrist

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: In this paper, we consider the role of financial market imperfections in a simplified version of a twocountry model. We model cross-country financial heterogeneity through differences in leverage. We show that high leverage economies are particularly vulnerable to slow-downs in the world economy. The degree to which leverage magnifies shocks to the world economy depends on the nature of the disturbance. In the presence of the financial accelerator, supply shocks that are capital specific are likely to be less destabilizing than supply shocks that are disembodied.

Date: 2003-10
New Economics Papers: this item is included in nep-fin and nep-fmk
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Citations: View citations in EconPapers (12)

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https://www.bcentral.cl/documents/33528/133326/DTBC_228.pdf (application/pdf)

Related works:
Chapter: Financial Markets and Financial Leverage in a Two-Country World Economy (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:228

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