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International liquidity rents

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  • Eden, Maya

Abstract

This paper presents a model of global liquidity shortages. Liquid claims are enforceable promises that play a transaction role. Since developed economies have a comparative advantage in creating liquidity, they export liquid claims to emerging economies, resulting in a permanent current account deficit. This model suggests that unrestricted liquidity flows are (a) welfare reducing for emerging economies and (b) Pareto inefficient. The inefficiency results both from excessive investment for the purpose of creating collateral-backed liquid claims, and from excessive global fragility with respect to collateral shocks.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6462.

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Date of creation: 01 May 2013
Date of revision:
Handle: RePEc:wbk:wbrwps:6462

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Related research

Keywords: Currencies and Exchange Rates; Economic Theory&Research; Debt Markets; Emerging Markets; Bankruptcy and Resolution of Financial Distress;

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References

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  1. Chang-Tai Hsieh & Peter Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," Working Papers 09-04, Center for Economic Studies, U.S. Census Bureau.
  2. Anton Korinek, 2011. "The New Economics of Prudential Capital Controls: A Research Agenda," IMF Economic Review, Palgrave Macmillan, vol. 59(3), pages 523-561, August.
  3. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2012. "The Aggregate Demand for Treasury Debt," Journal of Political Economy, University of Chicago Press, vol. 120(2), pages 233 - 267.
  4. Holmström, Bengt, 2011. "Inside and Outside Liquidity," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262015783, December.
  5. Ricardo Caballero & Arvind Krishnamurthy, 2005. "Exchange Rate Volatility and the Credit Channel in Emerging Markets: A Vertical Perspective," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
  6. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2006. "An Equilibrium Model of Global Imbalances and Low Interest Rates," 2006 Meeting Papers 894, Society for Economic Dynamics.
  7. Eden, Maya, 2012. "Should Wall-Street be occupied ? an overlooked price externality of financial intermediation," Policy Research Working Paper Series 6059, The World Bank.
  8. Anusha Chari & Peter Blair Henry & Diego Sasson, 2009. "Capital Market Integration and Wages," NBER Working Papers 15204, National Bureau of Economic Research, Inc.
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Cited by:
  1. Calvo, Guillermo & Coricelli, Fabrizio & Ottonello, Pablo, 2012. "The Labor Market Consequences of Financial Crises With or Without Inflation: Jobless and Wageless Recoveries," CEPR Discussion Papers 9218, C.E.P.R. Discussion Papers.

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