IDEAS home Printed from https://ideas.repec.org/h/nbr/nberch/9802.html
   My bibliography  Save this book chapter

Risks to Lenders and Borrowers in International Capital Markets

In: International Capital Flows

Author

Listed:
  • Benjamin Hermalin
  • Andrew K. Rose
  • Peter M. Garber
  • Andrew Crockett
  • David W. Mullins, Jr

Abstract

This paper provides a framework for understanding the risks to borrowers and lenders in capital markets. We begin with a description of a capital markets in a domestic context. This allows us to focus on two key imperfections which lie at the heart of all financial systems: imperfect information, and the difficulty of making credible commitments for repayment. In the international context, these problems tend to be exacerbated. There are also two sources of risk in international borrowing that are absent in a purely domestic context: the risk that sovereign borrowers will default, and the risk of macroeconomic instability that stems from the impact of net capital flows on the monetary system.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Benjamin Hermalin & Andrew K. Rose & Peter M. Garber & Andrew Crockett & David W. Mullins, Jr, 1999. "Risks to Lenders and Borrowers in International Capital Markets," NBER Chapters, in: International Capital Flows, pages 363-420, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:9802
    as

    Download full text from publisher

    File URL: http://www.nber.org/chapters/c9802.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bulow, Jeremy & Rogoff, Kenneth, 1989. "Sovereign Debt: Is to Forgive to Forget?," American Economic Review, American Economic Association, vol. 79(1), pages 43-50, March.
    2. Hermalin, Benjamin E. & Wallace, Nancy E., 1992. "The Determinants of Efficiency and Solvency in Savings and Loans," Department of Economics, Working Paper Series qt1nj556zf, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    3. Harold L. Cole & Timothy J. Kehoe, 2000. "Self-Fulfilling Debt Crises," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(1), pages 91-116.
    4. Benjamin E. Hermalin & Nancy E. Wallace, 1994. "The Determinants of Efficiency and Solvency in Savings and Loans," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 361-381, Autumn.
    5. Eaton, Jonathan, 1990. "Debt Relief and the International Enforcement of Loan Contracts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 43-56, Winter.
    6. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    7. Martin Feldstein, 1994. "Tax policy and international capital flows," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 130(4), pages 675-697, December.
    8. Calvo, Guillermo A, 1996. "Capital Flows and Macroeconomic Management: Tequila Lessons," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 1(3), pages 207-223, July.
    9. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    10. Gertler, M. & Rose,Thomas A., 1991. "Finance, growth, and public policy," Policy Research Working Paper Series 814, The World Bank.
    11. Calvo, Guillermo A. & Mendoza, Enrique G., 1996. "Mexico's balance-of-payments crisis: a chronicle of a death foretold," Journal of International Economics, Elsevier, vol. 41(3-4), pages 235-264, November.
    12. Barry Eichengreen & Andrew K. Rose, 1998. "Staying Afloat When the Wind Shifts: External Factors and Emerging-Market Banking Crises," NBER Working Papers 6370, National Bureau of Economic Research, Inc.
    13. Garber, Peter M, 1996. "Managing Risks to Financial Markets from Volatile Capital Flows: The Role of Prudential Regulation," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 1(3), pages 183-195, July.
    14. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(4), pages 629-649.
    15. Hermalin, Benjamin E. & Wallace, Nancy E., 2001. "Firm performance and executive compensation in the savings and loan industry," Journal of Financial Economics, Elsevier, vol. 61(1), pages 139-170, July.
    16. Peter M. Garber & Michael G. Spencer, 1995. "Foreign Exchange Hedging and the Interest Rate Defense," IMF Staff Papers, Palgrave Macmillan, vol. 42(3), pages 490-516, September.
    17. Gabriel Fuentes, 1996. "The use of village agents in rural credit delivery," Journal of Development Studies, Taylor & Francis Journals, vol. 33(2), pages 188-209.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Aysun, Uluc, 2008. "Automatic stabilizer feature of fixed exchange rate regimes," Emerging Markets Review, Elsevier, vol. 9(4), pages 302-328, December.
    2. Marin, Dalia & Schnitzer, Monika, 2011. "When is FDI a capital flow?," European Economic Review, Elsevier, vol. 55(6), pages 845-861, August.
    3. Keskinsoy, Bilal, 2017. "Taxi, Takeoff and Landing: Behavioural Patterns of Capital Flows to Emerging Markets," MPRA Paper 78129, University Library of Munich, Germany.
    4. Cao, Qingqing & Minetti, Raoul & Olivero, Maria, 2018. "No Pain, No Gain. Multinational Banks in the Business Cycle," School of Economics Working Paper Series 2018-6, LeBow College of Business, Drexel University.
    5. Aysun, Uluc & Honig, Adam, 2011. "Bankruptcy costs, liability dollarization, and vulnerability to sudden stops," Journal of Development Economics, Elsevier, vol. 95(2), pages 201-211, July.
    6. Qingqing Cao, 2018. "No Pain, No Gain. Multinational Banks in the Business Cycle," 2018 Meeting Papers 1059, Society for Economic Dynamics.
    7. Claudia M. Buch, 2002. "Are Banks Different? Evidence from International Data," International Finance, Wiley Blackwell, vol. 5(1), pages 97-114.
    8. Arias, Guillaume & Erlandsson, Ulf, 2004. "Regime switching as an alternative early warning system of currency crises - an application to South-East Asia," Working Papers 2004:11, Lund University, Department of Economics.
    9. Iacoviello, Matteo & Minetti, Raoul, 2006. "International business cycles with domestic and foreign lenders," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2267-2282, November.
    10. Michael D. Bordo & Barry Eichengreen & Douglas A. Irwin, 1999. "Is Globalization Today Really Different than Globalization a Hunderd Years Ago?," NBER Working Papers 7195, National Bureau of Economic Research, Inc.
    11. Araújo, Carlos Hamilton Vasconcelos, 2002. "Political risk, incentives and international credit market equilibrium," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 22(2), November.
    12. Clara Garcia, 2004. "Capital Inflows, Policy Responses, and Their Ill Consequences: Thailand, Malaysia, and Indonesia in the Decade Before the Crises," Working Papers wp81, Political Economy Research Institute, University of Massachusetts at Amherst.
    13. Matteo Iacoviello & Raoul Minetti, 2003. "Domestic and Foreign Lenders and International Business Cycles," Boston College Working Papers in Economics 554, Boston College Department of Economics, revised 05 Dec 2003.
    14. Pablo Bustelo & Clara Garcia & Iliana Olivie, 1999. "Global and Domestic Factors of Financial Crises in Emerging Economies: Lessons from the East Asian Episodes (1997-1999)," Working Papers 002, Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales.
    15. Rubio, Margarita, 2020. "Cross-country spillovers from macroprudential regulation: Reciprocity and leakage," Journal of International Money and Finance, Elsevier, vol. 103(C).
    16. Minetti, Raoul & Peng, Tao, 2013. "Lending constraints, real estate prices and business cycles in emerging economies," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2397-2416.
    17. Alvarez Lois, Pedro Pablo, 2001. "Capital Flows and Foreign Interest Rate Disturbances in a Small Open Economy," Journal of Macroeconomics, Elsevier, vol. 23(1), pages 45-72, January.
    18. Chris Garbers & Guangling Liu, 2017. "Flow specific capital controls for emerging markets," Working Papers 12/2017, Stellenbosch University, Department of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Peter M. Garber, 1998. "Derivatives in International Capital Flows," NBER Working Papers 6623, National Bureau of Economic Research, Inc.
    2. Jonathan A. Parker & Michael Fishman, 2010. "Valuation and the Volatility of Financing and Investment," 2010 Meeting Papers 1131, Society for Economic Dynamics.
    3. Luisa Lambertini, 2001. "Volatility and Sovereign Default," Boston College Working Papers in Economics 577, Boston College Department of Economics.
    4. Dailami, Mansoor & Leipziger, Danny, 1998. "Infrastructure Project Finance and Capital Flows: A New Perspective," World Development, Elsevier, vol. 26(7), pages 1283-1298, July.
    5. Michael J. Fishman & Jonathan A. Parker, 2015. "Valuation, Adverse Selection, and Market Collapses," The Review of Financial Studies, Society for Financial Studies, vol. 28(9), pages 2575-2607.
    6. Etro, Federico, 2017. "Research in economics and game theory. A 70th anniversary," Research in Economics, Elsevier, vol. 71(1), pages 1-7.
    7. Andrea Attar & Thomas Mariotti & François Salanié, 2021. "Entry-Proofness and Discriminatory Pricing under Adverse Selection," American Economic Review, American Economic Association, vol. 111(8), pages 2623-2659, August.
    8. Andrea Attar & Thomas Mariotti & François Salanié, 2020. "The Social Costs of Side Trading," The Economic Journal, Royal Economic Society, vol. 130(630), pages 1608-1622.
    9. Dionne, G. & Doherty, N., 1991. "Adverse Selection In Insurance Markets: A Selective Survey," Cahiers de recherche 9105, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    10. Jean-Pierre Allegret, 2000. "Quel role pour les controles des mouvements internationaux de capitaux ?," Economie Internationale, CEPII research center, issue 81, pages 77-108.
    11. Alessandro Spiganti, 2022. "Wealth Inequality and the Exploration of Novel Alternatives," Working Papers 2022:02, Department of Economics, University of Venice "Ca' Foscari".
    12. Pietro Tebaldi, 2015. "Estimating Equilibrium in Health Insurance Exchanges: Analysis of the Californian Market under the ACA," Discussion Papers 15-012, Stanford Institute for Economic Policy Research.
    13. Bora Durdu & Enrique G. Mendoza, 2004. "Putting the brakes on Sudden Stops: the financial frictions - moral hazard tradeoff of asset price guarantees," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
    14. Hyojoung Kim & Doyoung Kim & Subin Im & James W. Hardin, 2009. "Evidence of Asymmetric Information in the Automobile Insurance Market: Dichotomous Versus Multinomial Measurement of Insurance Coverage," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(2), pages 343-366, June.
    15. Aguiar, M. & Chatterjee, S. & Cole, H. & Stangebye, Z., 2016. "Quantitative Models of Sovereign Debt Crises," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1697-1755, Elsevier.
    16. Alessio Emanuele BIONDO, 2011. "High-Tech Products and the Double Adverse Selection: Does Commercial Distribution Worsen Efficiency?," Journal of Knowledge Management, Economics and Information Technology, ScientificPapers.org, vol. 1(7), pages 1-18, December.
    17. Steinherr, Alfred & Cisotta, Alessandro & Klar, Erik & Sehovic, Kenan, 2006. "Liberalizing Cross-Border Capital Flows: How Effective Are Institutional Arrangements against Crisis in Southeast Asia," Working Papers on Regional Economic Integration 6, Asian Development Bank.
    18. Rodríguez, Elsa Mirta M. & Lacaze, María Victoria & Lupín, Beatriz, 2007. "Willingness to pay for organic food in Argentina: evidence from a consumer survey," Nülan. Deposited Documents 1300, Universidad Nacional de Mar del Plata, Facultad de Ciencias Económicas y Sociales, Centro de Documentación.
    19. Dongyuan Zhan & Amy R. Ward, 2019. "Staffing, Routing, and Payment to Trade off Speed and Quality in Large Service Systems," Operations Research, INFORMS, vol. 67(6), pages 1738-1751, November.
    20. Attar, Andrea & Mariotti, Thomas & Salanié, François, 2019. "On competitive nonlinear pricing," Theoretical Economics, Econometric Society, vol. 14(1), January.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberch:9802. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.