Heterogeneous global cycles

Maryam Farboodi and Péter Kondor

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Why do countries differ in terms of their exposure to fluctuations in the global supply of credit? We argue that frictions in global intermediation lead to an endogenous partitioning of economies into groups with low and high exposure to the global credit cycle. We show that investors with varying degree of information hold dissimilar portfolios, with low skilled investors sharply rebalancing their cross-country asset holdings across different aggregate states. The differential response of investors invites differential strategies of firms, jointly shaping heterogeneous global cycles. We connect the implications of our model to stylized facts on credit spreads, investment, safe asset supply, concentration of debt ownership, and the return on debt during various boom-bust episodes, both in the time series and in the cross-section. We demonstrate that a global savings glut not only exacerbates both booms and busts in high exposure countries, but also increases the exposure of some countries to credit cycles.

JEL-codes: E32 E44 G15 (search for similar items in EconPapers)
Pages: 79 pages
Date: 2018-12-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://eprints.lse.ac.uk/118911/ Open access version. (application/pdf)

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:ehl:lserod:118911

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager (lseresearchonline@lse.ac.uk).