Buy this book
![Loading indicator](/images/ajax-loader-bar.gif)
"Financial globalization had a rocky start in emerging economies hit by Sudden Stops. Foreign reserves have grown very rapidly since then, as if those countries were practicing a New Mercantilism that views foreign reserves as a war-chest for defense against Sudden Stops. This paper conducts a quantitative assessment of this argument using a stochastic intertemporal equilibrium framework in which precautionary foreign asset demand is driven by output variability, financial globalization, and Sudden Stop risk. In this framework, credit constraints produce endogenous Sudden Stops. We find that financial globalization and Sudden Stop risk can explain the surge in reserves but output variability cannot. These results hold using the intertemporal preferences of the Bewley-Aiyagari-Hugget precautionary savings model or the Uzawa-Epstein setup with endogenous impatience"--Federal Reserve Board web site.
Buy this book
![Loading indicator](/images/ajax-loader-bar.gif)
Showing 7 featured editions. View all 7 editions?
Book Details
Edition Notes
Title from PDF file as viewed on 12/17/2007.
Includes bibliographical references.
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.
Classifications
External Links
The Physical Object
ID Numbers
Work Description
"Financial globalization was off to a rocky start in emerging economies hit by Sudden Stops since the mid 1990s. Foreign reserves grew very rapidly during this period, and hence it is often argued that we live in the era of a New Merchantilism in which large stocks of reserves are a war-chest for defense against Sudden Stops. We conduct a quantitative assessment of this argument using a stochastic intertemporal equilibrium framework with incomplete asset markets in which precautionary saving affects foreign assets via three mechanisms: business cycle volatility, financial globalization, and Sudden Stop risk. In this framework, Sudden Stops are an equilibrium outcome produced by an endogenous credit constraint that triggers Irving Fisher's debt-deflation mechanism. Our results show that financial globalization and Sudden Stop risk are plausible explanations of the observed surge in reserves but business cycle volatility is not. In fact, business cycle volatility has declined in the post-globalization period. These results hold whether we use the formulation of intertemporal preferences of the Bewley-Aiyagari-Hugget class of precautionary savings models or the Uzawa-Epstein setup with endogenous time preference"--National Bureau of Economic Research web site.
Community Reviews (0)
Feedback?History
- Created December 19, 2020
- 1 revision
Wikipedia citation
×CloseCopy and paste this code into your Wikipedia page. Need help?
December 19, 2020 | Created by MARC Bot | Imported from Library of Congress MARC record |