Asset Prices, Leverage and Portfolio Rebalancing Drive Global Capital Flows Cycle

Jonathan Davis and Eric Van Wincoop

Dallas Fed Economics from Federal Reserve Bank of Dallas

Abstract: The amount of leverage—borrowed funds relative to the value of underlying assets—increases for risky holdings during downturns, motivating their ultimate sale to achieve a more secure financial position. The opposite occurs during upswings, as risky assets gain favor.

Keywords: Capital Flows; Currency (search for similar items in EconPapers)
Date: 2021-11-30
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Persistent link: https://EconPapers.repec.org/RePEc:fip:d00001:93434

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