The High Cross-Country Correlations of Prices and Interest Rates

Espen Henriksen, Finn Kydland and Roman Sustek

Discussion Papers from University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM)

Abstract: We introduce financial frictions in a two sector model of international trade with heterogeneous agents. The level of specialization in the economy (economic development) depends on the quality of financial institutions. Underdeveloped financial markets prohibit an economy to specialize in sectors where finance is important. Capital flows and international trade are complements when countries differ in the degree of development of their financial sectors. Capital flows to countries with more robust financial institutions which in turn allow their economies to develop sectors that are financially dependent.

Keywords: trade flows; capital flows; financial frictions; economic development. (search for similar items in EconPapers)
Date: 2011-01
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: The High Cross-Country Correlations of Prices and Interest Rates (2008)
Working Paper: The High Correlations of Prices and Interest Rates across Nations (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:not:notcfc:11/01

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