A Model of Fickle Capital Flows and Retrenchment
Ricardo Caballero () and
No 13819, CEPR Discussion Papers from C.E.P.R. Discussion Papers
We develop a model of gross capital flows and analyze their role in global financial stability. In our model, consistent with the data, when a country experiences asset fire sales, foreign investments exit (fickleness) while domestic investments abroad return home (retrenchment). When countries have symmetric expected returns and financial development, the benefits of retrenchment dominate the costs of fickleness and gross flows increase fire-sale prices. Fickleness, however, creates a coordination problem since it encourages local policymakers to restrict capital inflows. When countries are asymmetric, capital flows are driven by additional mechanisms, reach-for-safety and reach-for-yield, that can destabilize the receiving country.
Keywords: asset fire sales; capital controls; fickleness; Global liquidity; Gross capital flows; Policy Coordination; reach-for-safety; reach-for-yield; retrenchment; scarcity of safe assets (search for similar items in EconPapers)
JEL-codes: E3 E4 F3 F4 F6 G1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at email@example.com
Journal Article: A Model of Fickle Capital Flows and Retrenchment (2020)
Working Paper: A Model of Fickle Capital Flows and Retrenchment (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:13819
Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... rs/dp.php?dpno=13819
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().