Global Financial Cycle and Liquidity Management / Olivier Jeanne, Damiano Sandri.

Format:

Book

Author/Creator:

Jeanne, Olivier.

Contributor:

National Bureau of Economic Research.

Sandri, Damiano.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27901.

NBER working paper series no. w27901

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

We use a tractable model to show that emerging markets can protect themselves from the global financial cycle by expanding (rather than restricting) capital flows. This involves accumulating reserves when global liquidity is high to buy back domestic assets at a discount when global financial conditions tighten. Since the private sector does not internalize how this buffering mechanism reduces international borrowing costs, a social planner increases the size of capital flows beyond the laissez-faire equilibrium. The model also provides a role for foreign exchange intervention in less financially developed countries. The main predictions of the model are consistent with the data.

Notes:

Print version record

October 2020.