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Capital flows and asset prices

Kosuke Aoki, Gianluca Benigno and Nobuhiro Kiyotaki

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

Abstract: 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.

JEL-codes: F32 F37 F41 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2009-04
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http://eprints.lse.ac.uk/25487/ Open access version. (application/pdf)

Related works:
Chapter: Capital Flows and Asset Prices (2009) Downloads
Working Paper: Capital Flows and Asset Prices (2009) Downloads
Working Paper: Capital flows and asset prices (2007) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:25487

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