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Hot Money

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Author Info
V. V. Chari
Patrick Kehoe

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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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6007.

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Date of creation: Apr 1997
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Publication status: published as Chari, V.V. and Patrick J. Kehoe. "Hot Money," Journal of Political Economy, 2003, v111(6,Dec), 1262-1292.
Handle: RePEc:nbr:nberwo:6007

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F0 - International Economics - - General
F3 - International Economics - - International Finance

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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  19. Guillermo A. Calvo & Enrique G. Mendoza, 1996. "Mexico's balance-of-payments crisis: a chronicle of death foretold," International Finance Discussion Papers 545, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  23. repec:fth:coluec:602 is not listed on IDEAS
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Mei Li, 2007. "Investment Complementarities, Coordination Failure and Systemic Bankruptcy," Working Papers 1149, Queen's University, Department of Economics. [Downloadable!]
  2. Paolo Pesenti & Cedric Tille, 2000. "The economics of currency crises and contagion: an introduction," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 3-16. [Downloadable!]
  3. Franklin Allen & Douglas Gale, 1999. "Financial Contagion," Levine's Working Paper Archive 2092, UCLA Department of Economics. [Downloadable!]
    Other versions:
  4. George-Marios Angeletos & Christian Hellwig & Alessandro Pavan, 2004. "Coordination and Policy Traps," Levine's Bibliography 122247000000000294, UCLA Department of Economics. [Downloadable!]
    Other versions:
  5. Montiel, Peter & Serven, Luis, 2004. "Macroeconomic stability in developing countries - How much is enough?," Policy Research Working Paper Series 3456, The World Bank. [Downloadable!]
    Other versions:
  6. V. V. Chari & Patrick J. Kehoe, 2003. "Financial crises as herds: overturning the critiques," Staff Report 316, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  7. George-Marios Angeletos & Christian Hellwig & Alessandro Pavan, 2004. "Information Dynamics and Equilibrium Multiplicity in Global Games of Regime Change," NBER Working Papers 11017, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Stacey L. Schreft & Aarti Singh & Ashley Hodgson, 2005. "Jobless recoveries and the wait-and-see hypothesis," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 81-99. [Downloadable!]
  9. Amil Dasgupta, 2000. "Social Learning with Payoff Complementarities," Econometric Society World Congress 2000 Contributed Papers 0322, Econometric Society. [Downloadable!]
  10. George-Marios Angeletos & Ivan Werning, 2004. "Crises and Prices: Information Aggregation, Multiplicity and Volatility," NBER Working Papers 11015, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  11. Lawrence J. Cristiano & Terry J. Fitzgerald, 1998. "The business cycle: it's still a puzzle," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 56-83. [Downloadable!]
  12. Zvika Neeman & Gerhard O. Orosel, 2001. "Credits, Crises, and Capital Controls: A Microeconomic Analysis," Vienna Economics Papers 0103, University of Vienna, Department of Economics. [Downloadable!]
    Other versions:
  13. Roger Lagunoff & Stacey L. Schreft, 1998. "A Model of Financial Fragility," Game Theory and Information 9803001, EconWPA, revised 30 Apr 1998. [Downloadable!]
    Other versions:
  14. Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2005. "Capital Flows in a Globalized World: The Role of Policies and Institutions," NBER Working Papers 11696, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Broner, Fernando A, 2006. "Discrete Devaluations and Multiple Equilibria in a First Generation Model of Currency Crises," CEPR Discussion Papers 5876, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  17. Beckmann, Daniela & Menkhoff, Lukas & Suto, Megumi, 2007. "Does Culture Influence Asset Managers? Views and Behavior?," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-367, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
  18. Laura L. Veldkamp, 2006. "Media Frenzies in Markets for Financial Information," American Economic Review, American Economic Association, vol. 96(3), pages 577-601, June.
    Other versions:
  19. Claudia M. Buch, 2002. "Business Cycle Volatility and Globalization: A Survey," Kiel Working Papers 1107, Kiel Institute for the World Economy. [Downloadable!]
  20. Laura Alfaro & Fabio Kanczuk, 2007. "Debt Maturity: Is Long-Term Debt Optimal?," NBER Working Papers 13119, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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