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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 Western Ontario, The Centre for the Study of International Economic Relations in its series University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers with number 8902c.

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Length: 41 pages
Date of creation: 1989
Date of revision:
Handle: RePEc:uwo:wocier:8902c

Contact details of provider:
Postal: The Centre for the Study of International Economic Relations, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85244
Web page: http://economics.uwo.ca/

Related research

Keywords: economic models ; financial policy ; exchange rate ; business cycles;

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References

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  1. Boyd, John H. & Prescott, Edward C., 1986. "Financial intermediary-coalitions," Journal of Economic Theory, Elsevier, Elsevier, vol. 38(2), pages 211-232, April.
  2. Alan C. Stockman, 1985. "Effects of Inflation on the Pattern of International Trade," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 18(3), pages 587-601, August.
  3. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, Elsevier, vol. 4(2), pages 103-124, April.
  4. Helpman, Elhanan, 1981. "An Exploration in the Theory of Exchange-Rate Regimes," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(5), pages 865-90, October.
  5. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, Elsevier, vol. 21(2), pages 265-293, October.
  6. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  7. Alan C. Stockman & Lars E.O. Svensson, 1985. "Capital Flows, Investment, and Exchange Rates," NBER Working Papers 1598, National Bureau of Economic Research, Inc.
  8. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, Elsevier, vol. 16(3), pages 309-327, November.
  9. Greenwood, Jeremy & Huffman, Gregory W., 1987. "A dynamic equilibrium model of inflation and unemployment," Journal of Monetary Economics, Elsevier, Elsevier, vol. 19(2), pages 203-228, March.
  10. Freeman, Scott & Murphy, Robert G., 1989. "Inside money and the open economy," Journal of International Economics, Elsevier, Elsevier, vol. 26(1-2), pages 29-51, February.
  11. Thomas J. Sargent, 1982. "Beyond demand and supply curves in macroeconomics," Staff Report, Federal Reserve Bank of Minneapolis 77, Federal Reserve Bank of Minneapolis.
  12. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  13. Stephen D. Williamson, 1984. "Costly Monitoring, Financial Intermediation, and Equilibrium Credit Rationing," Working Papers, Queen's University, Department of Economics 583, Queen's University, Department of Economics.
  14. 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.
  15. Helpman, Elhanan & Razin, Assaf, 1982. "Dynamics of a Floating Exchange Rate Regime," Scholarly Articles 3445095, Harvard University Department of Economics.
  16. Obstfeld, Maurice, 1981. "Macroeconomic Policy, Exchange-Rate Dynamics, and Optimal Asset Accumulation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(6), pages 1142-61, December.
  17. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, Elsevier, vol. 10(3), pages 335-359.
  18. Kareken, John & Wallace, Neil, 1981. "On the Indeterminacy of Equilibrium Exchange Rates," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 96(2), pages 207-22, May.
  19. Townsend, Robert M, 1983. "Financial Structure and Economic Activity," American Economic Review, American Economic Association, American Economic Association, vol. 73(5), pages 895-911, December.
  20. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
  21. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 645-67, August.
  22. Aschauer, David & Greenwood, Jeremy, 1983. "A Further Exploration in the Theory of Exchange Rate Regimes," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(5), pages 868-75, October.
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Citations

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Cited by:
  1. Jaume Ventura, 2005. "A global view of economic growth," Economics Working Papers 849, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Amado Peiró, 2002. "Macroeconomic Synchronization Between G3 Countries," Working Papers. Serie EC, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2002-16, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  3. Joseph G. Haubrich, 1991. "Financial efficiency and aggregate fluctuations: an exploration," Economic Review, Federal Reserve Bank of Cleveland, Federal Reserve Bank of Cleveland, issue Q IV, pages 25-36.
  4. Toichiro Asada & Carl Chiarella & Peter Flaschel & Reiner Franke, 2003. "Interacting Two-Country Business Fluctuations," Working Paper Series, Finance Discipline Group, UTS Business School, University of Technology, Sydney 128, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  5. David Cook & Woon Gyu Choi, 2002. "Liability Dollarization and the Bank Balance Sheet Channel," IMF Working Papers 02/141, International Monetary Fund.
  6. Stephen D. Williamson, 1989. "Restrictions on financial intermediaries and implications for aggregate fluctuations: Canada and the United States, 1870-1913," Staff Report, Federal Reserve Bank of Minneapolis 119, Federal Reserve Bank of Minneapolis.
  7. Vittorio Grilli & Nouriel Roubini, 1991. "Financial Intermediation and Monetary Policies in the World Economy," NBER Technical Working Papers 0104, National Bureau of Economic Research, Inc.
  8. Javier Diaz-Gimenez & Edward C. Prescott & Terry Fitzgerald & Fernando Alvarez, 1992. "Banking in computable general equilibrium economies," Staff Report, Federal Reserve Bank of Minneapolis 153, Federal Reserve Bank of Minneapolis.
  9. Amado Peiró, 2000. "Economic Comovements In European Countries," Working Papers. Serie EC, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2000-19, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  10. Mark Gertler & Kenneth Rogoff, 1989. "Developing country borrowing and domestic wealth," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco.
  11. Wagner, W.B., 2000. "Decentralized International Risk Sharing and Governmental Moral Hazard," Discussion Paper, Tilburg University, Center for Economic Research 2000-92, Tilburg University, Center for Economic Research.
  12. Peiro, Amado, 2005. "Economic comovements in European countries," Journal of Policy Modeling, Elsevier, Elsevier, vol. 27(5), pages 575-584, July.
  13. Amado Peiró, 2002. "Macroeconomic Synchronization Between G3 Countries," German Economic Review, Verein für Socialpolitik, 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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