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International capital crunches: the time-varying role of informational asymmetries

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  • Ashoka Mody
  • Mark P. Taylor

Abstract

We examine the determinants of capital flows to four developing countries during the 1990s using an explicitly disequilibrium econometric framework in which the supply and demand for capital are not necessarily equal and the actual amount of the flow is determined by the ‘short side’ of the market. We are thus able to detect instances of ‘international capital crunch’ -- where capital flows are curtailed because of supply-side rationing -- and to relate these instances to movements in the underlying fundamentals. The analysis highlights the role of asymmetric information -- as distinct from the traditional concern with default risk -- in conditioning capital flows.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 45 (2013)
Issue (Month): 20 (July)
Pages: 2961-2973

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Handle: RePEc:taf:applec:v:45:y:2013:i:20:p:2961-2973

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Citations

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Cited by:
  1. Lo Duca, Marco, 2012. "Modelling the time varying determinants of portfolio flows to emerging markets," Working Paper Series 1468, European Central Bank.
  2. Bruno Bonizzi, 2013. "Capital Flows to Emerging Markets: An alternative Theoretical Framework," Working Papers 186, Department of Economics, SOAS, University of London, UK.
  3. Niall Ferguson & Moritz Schularick, 2005. "The Empire Effect: Country Risk in the First Age of Globalization, 1880-1913," Economic History 0509002, EconWPA.
  4. Felices, Guillermo & Orskaug, Bjorn-Erik, 2008. "Estimating the determinants of capital flows to emerging market economies: a maximum likelihood disequilibrium approach," Bank of England working papers 354, Bank of England.
  5. Kinda, Tidiane, 2007. "Increasing private capital flows to developing countries: The role of physical and financial infrastructure," MPRA Paper 19163, University Library of Munich, Germany.
  6. Mody, Ashoka & Taylor, Mark P, 2003. "Common Vulnerabilities," CEPR Discussion Papers 3759, C.E.P.R. Discussion Papers.

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