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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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  • Ashoka Mody & Mark P. Taylor, 2013. "International capital crunches: the time-varying role of informational asymmetries," Applied Economics, Taylor & Francis Journals, vol. 45(20), pages 2961-2973, July.
  • Handle: RePEc:taf:applec:v:45:y:2013:i:20:p:2961-2973
    DOI: 10.1080/00036846.2012.657355
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    1. repec:jso:coejbm:v:4:y:2016:i:3:p:130-139 is not listed on IDEAS
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    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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