Financial Markets and Financial Leverage in a Two-Country World-Economy
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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- Mark Gertler & Simon Gilchrist & Fabio M. Natalucci, 2003.
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0175, European Central Bank.
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Money Macro and Finance (MMF) Research Group Conference 2003
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- Faia, Ester, 2002. "Monetary policy in a world with different financial systems," Working Paper Series 0183, European Central Bank.
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