Financial Markets and Financial Leverage in a Two-Country World Economy
In: Banking Market Structure and Monetary Policy
In this paper, we consider the role of financial market imperfections in a simplified version of a twocountry model. We model cross-country financial heterogeneity through differences in leverage. We show that high leverage economies are particularly vulnerable to slow-downs in the world economy. The degree to which leverage magnifies shocks to the world economy depends on the nature of the disturbance. In the presence of the financial accelerator, supply shocks that are capital specific are likely to be less destabilizing than supply shocks that are disembodied.
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|This chapter was published in: Luis Antonio Ahumada & J. Rodrigo Fuentes & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.) Banking Market Structure and Monetary Policy, , chapter 2, pages 027-058, 2004.|
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- Mark Gertler & Simon Gilchrist & Fabio M. Natalucci, 2001.
"External constraints on monetary policy and the financial accelerator,"
Federal Reserve Bank of San Francisco, issue Mar.
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- Simon Gilchrist & Jean-Olivier Hairault & Hubert Kempf, 2002.
"Monetary policy and the financial accelerator in a monetary union,"
International Finance Discussion Papers
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- Faia, Ester, 2002.
"Monetary policy in a world with different financial systems,"
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- Ester Faia, 2004. "Monetary policy in a world with different financial systems," Money Macro and Finance (MMF) Research Group Conference 2003 28, Money Macro and Finance Research Group.
- Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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