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

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Chari, V. V

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w6007.Publication details: Cambridge, Mass. National Bureau of Economic Research 1997.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: 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.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w6007 (Browse shelf(Opens below))	Not For Loan

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April 1997.

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.