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Financial market globalization, nonconvergence and credit cycles

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  • Wai-Hong Ho

    (University of Macau)

Abstract

This paper explores the dynamic consequences of variable investment-project size in a global economy consisting of many small open countries that are plagued with domestic credit market frictions. As is customary in the literature, borrowers provide some internal funds, but they also need external funds to implement their investment projects, which are subject to the costly-state-verification problem. Contrary to the literature, the investment-project size increases with the country’s own capital stock. We find that financial market globalization may lead to a process of oscillatory convergence, even in the absence of any exogenous shocks, if the investment-project size is very sensitive to the change in capital stock.

Suggested Citation

  • Wai-Hong Ho, 2017. "Financial market globalization, nonconvergence and credit cycles," Annals of Finance, Springer, vol. 13(2), pages 153-180, May.
    • Handle: RePEc:kap:annfin:v:13:y:2017:i:2:d:10.1007_s10436-017-0293-0
    DOI: 10.1007/s10436-017-0293-0
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    Cited by:

    1. Ryosuke Shimizu, 2018. "Bubbles, growth and imperfection of credit market in a two-country model," Annals of Finance, Springer, vol. 14(3), pages 353-377, August.

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    More about this item

    Keywords

    Costly-state-verification; Credit market imperfection; Cycles; Symmetry-breaking;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development

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