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International Financial Intermediation And Aggregate Fluctuations Under Alternative Exchange Rate Regimes

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Author Info

  • GREENWOOD, J.
  • WILLIAMSON, S.D.

Abstract

This paper presents a two-country overlapping generations model in which financial intermediation arises endogenously as an incentive-compatible means of economizing on monitoring costs. Because of the existence of transactions costs, money markets in the two countries are segmented and investors have differential access to international credit markets. The model is used to generate predictions about the role of international intermediation in economic development and to examine the nature of business cycle phenomena across alternative exchange rate regimes. Disturbances are propagated by a credit allocation mechanism, which also lends a novel flavor to the model’s long-run properties.

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Bibliographic Info

Paper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 120.

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Length: 49 pages
Date of creation: 1988
Date of revision:
Handle: RePEc:roc:rocher:120

Contact details of provider:
Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.

Related research

Keywords: economic models ; exchange rate ; generations ; business cycles ; international financial market;

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References

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  1. Obstfeld, Maurice, 1981. "Macroeconomic Policy, Exchange-Rate Dynamics, and Optimal Asset Accumulation," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1142-61, December.
  2. Boyd, John H. & Prescott, Edward C., 1986. "Financial intermediary-coalitions," Journal of Economic Theory, Elsevier, vol. 38(2), pages 211-232, April.
  3. Stephen D. Williamson, 1984. "Costly Monitoring, Financial Intermediation, and Equilibrium Credit Rationing," Working Papers 583, Queen's University, Department of Economics.
  4. Alan C. Stockman & Lars E.O. Svensson, 1985. "Capital Flows, Investment, and Exchange Rates," NBER Working Papers 1598, National Bureau of Economic Research, Inc.
  5. Alan C. Stockman, 1985. "Effects of Inflation on the Pattern of International Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 18(3), pages 587-601, August.
  6. Helpman, Elhanan, 1981. "An Exploration in the Theory of Exchange-Rate Regimes," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 865-90, October.
  7. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  8. Helpman, Elhanan & Razin, Assaf, 1982. "Dynamics of a Floating Exchange Rate Regime," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 728-54, August.
  9. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
  10. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  11. Freeman, Scott & Murphy, Robert G., 1989. "Inside money and the open economy," Journal of International Economics, Elsevier, vol. 26(1-2), pages 29-51, February.
  12. Thomas J. Sargent, 1982. "Beyond demand and supply curves in macroeconomics," Staff Report 77, Federal Reserve Bank of Minneapolis.
  13. Freeman, Scott & Huffman, Gregory W, 1991. "Inside Money, Output, and Causality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 645-67, August.
  14. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  15. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  16. Greenwood, Jeremy & Huffman, Gregory W., 1987. "A dynamic equilibrium model of inflation and unemployment," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 203-228, March.
  17. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
  18. Lars E.O. Svensson & Sweder van Wijnbergen, 1987. "Excess Capacity, Monopolistic Competition, and International Transmission of Monetary Disturbances," NBER Working Papers 2262, National Bureau of Economic Research, Inc.
  19. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  20. Kareken, John & Wallace, Neil, 1981. "On the Indeterminacy of Equilibrium Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 207-22, May.
  21. Townsend, Robert M, 1983. "Financial Structure and Economic Activity," American Economic Review, American Economic Association, vol. 73(5), pages 895-911, December.
  22. Aschauer, David & Greenwood, Jeremy, 1983. "A Further Exploration in the Theory of Exchange Rate Regimes," Journal of Political Economy, University of Chicago Press, vol. 91(5), pages 868-75, October.
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Citations

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Cited by:
  1. Wagner, W.B., 2000. "Decentralized International Risk Sharing and Governmental Moral Hazard," Discussion Paper 2000-92, Tilburg University, Center for Economic Research.
  2. Stephen D. Williamson, 1989. "Restrictions on Financial Intermediaries and Implications for Aggregate Fluctuations: Canada and the United States 1870-1913," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 303-350 National Bureau of Economic Research, Inc.
  3. Toichiro Asada & Carl Chiarella & Peter Flaschel & Reiner Franke, . "Interacting Two-Country Business Fluctuations," Modeling, Computing, and Mastering Complexity 2003 02, Society for Computational Economics.
  4. Peiro, Amado, 2005. "Economic comovements in European countries," Journal of Policy Modeling, Elsevier, vol. 27(5), pages 575-584, July.
  5. Diaz-Gimenez, Javier & Prescott, Edward C. & Fitzgerald, Terry & Alvarez, Fernando, 1992. "Banking in computable general equilibrium economies," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 533-559.
  6. Grilli, Vittorio & Roubini, Nouriel, 1991. "Financial Intermediation and Monetary Policies in the World Economy," CEPR Discussion Papers 566, C.E.P.R. Discussion Papers.
  7. Amado Peiró, 2000. "Economic Comovements In European Countries," Working Papers. Serie EC 2000-19, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  8. Mark Gertler & Kenneth Rogoff, 1989. "Developing Country Borrowing and Domestic Wealth," NBER Working Papers 2887, National Bureau of Economic Research, Inc.
  9. Jaume Ventura, 2005. "A global view of economic growth," Economics Working Papers 849, Department of Economics and Business, Universitat Pompeu Fabra.
  10. Amado Peiró, 2002. "Macroeconomic Synchronization Between G3 Countries," Working Papers. Serie EC 2002-16, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  11. David Cook & Woon Gyu Choi, 2002. "Liability Dollarization and the Bank Balance Sheet Channel," IMF Working Papers 02/141, International Monetary Fund.
  12. Joseph G. Haubrich, 1991. "Financial efficiency and aggregate fluctuations: an exploration," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 25-36.
  13. Amado Peiró, 2002. "Macroeconomic Synchronization Between G3 Countries," German Economic Review, Verein für Socialpolitik, vol. 3(2), pages 137-153, 05.
  14. Alberto Giovannini, 1991. "The Currency Reform as the Last Stage of Economic and Monetary Union: Some Policy Questions," NBER Working Papers 3917, National Bureau of Economic Research, Inc.

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