A simple model of international capital flows, exchange rate risk, and portfolio choice

Rowena Pecchenino and Patricia Pollard ()

No 2000-009, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper examines international capital flows in the context of a simple Diamond-Dybvig model in which there are neither moral hazard nor adverse selection problems, thus isolating exchange rate risk as the propagator of capital flows. The model shows that adverse changes in exchange rate expectations can result in \"hot money\" flows even when a bank's balance sheet is perfectly transparent and its assets have a positive net present value in local currency terms. The model also indicates that foreign deposit guarantees even in the absence of a change in the bank's portfolio can increase the chance of bank runs.

Keywords: Capital movements; Foreign exchange (search for similar items in EconPapers)
Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://s3.amazonaws.com/real.stlouisfed.org/wp/2000/2000-009.pdf Full text (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:fip:fedlwp:2000-009

Ordering information: This working paper can be ordered from

DOI: 10.20955/wp.2000.009

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Scott St. Louis ().