Hot Money / V. V. Chari, Patrick Kehoe.

Format:

Book

Author/Creator:

Chari, V. V.

Contributor:

National Bureau of Economic Research.

Kehoe, Patrick.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6007.

NBER working paper series no. w6007

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1997.

Summary:

The conventional wisdom is that capital flows between developing countries and developed countries are more volatile than can be justified by fundamentals. In this paper we construct a simple model in which frictions in international financial markets in combination with standard debt-default problems lead to volatile capital flows. These flows act as tests of fire for borrowing countries. If a country survives this test, its reputation is enhanced and future capital flows become less volatile. Failing this test is associated with a loss of reputation and a decline in the amount of capital flows.

Notes:

Print version record

April 1997.