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A Model of Fickle Capital Flows and Retrenchment / Ricardo J. Caballero, Alp Simsek.
- Format:
- Book
- Author/Creator:
- Caballero, Ricardo J.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w22751.
- NBER working paper series no. w22751
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2016.
- Summary:
- We develop a model of gross capital flows and analyze their role in global financial stability. In our model, consistent with the data, when a country experiences asset fire sales, foreign investments exit (fickleness) while domestic investments abroad return home (retrenchment). When countries have symmetric expected returns and financial development, the benefits of retrenchment dominate the costs of fickleness and gross flows increase fire-sale prices. Fickleness, however, creates a coordination problem since it encourages local policymakers to restrict capital inflows. When countries are asymmetric, capital flows are driven by additional mechanisms, reach-for-safety and reach-for-yield, that can destabilize the receiving country.
- Notes:
- Print version record
- October 2016.
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