Minimum Investment Requirement, Financial Integration and Economic (In)stability:A Refinement to Matsuyama (2004)

Haiping Zhang ()

No 09-2013, Working Papers from Singapore Management University, School of Economics

Abstract: This note proposes a simple, more precise, necessary condition for symmetry breaking in Matsuyama (Financial Market Globalization, Symmetry-Breaking, and Endogenous Inequality of Nations, Econometrica, 2004 ), i.e., the positive interest rate response to income changes, which essentially arises from the assumptions of financial frictions and minimum investment size requirement of individual projects. This condition also holds under the more general settings. Thus, this note o ers an empirically testable hypothesis, i.e., Matsuyama's symmetry breaking is more likely, if the interest rate response to income changes is positive and sufficiently large.

Keywords: financial frictions; financial market globalization; minimum investment size requirement; symmetry breaking (search for similar items in EconPapers)
JEL-codes: E44 F41 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2013-12
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Citations: View citations in EconPapers (2)

Published in SMU Economics and Statistics Working Paper Series

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