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International Capital Crunches: The Time-Varying Role of Informational Asymmetries

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  • Mody, Ashoka
  • Taylor, Mark P

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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  • Mody, Ashoka & Taylor, Mark P, 2003. "International Capital Crunches: The Time-Varying Role of Informational Asymmetries," CEPR Discussion Papers 3757, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3757
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    Cited by:

    1. Grzegorz Tchorek & Michał Brzozowski & Paweł Śliwiński, 2017. "Determinants of capital flows to emerging and advanced economies between 1990 and 2011," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 16(1), pages 17-48, April.
    2. Bruno Bonizzi, 2013. "Capital Flows to Emerging Markets: An alternative Theoretical Framework," Working Papers 186, Department of Economics, SOAS, University of London, UK.
    3. Mody, Ashoka & Taylor, Mark P, 2003. "Common Vulnerabilities," CEPR Discussion Papers 3759, C.E.P.R. Discussion Papers.
    4. Felices, Guillermo & Orskaug, Bjorn-Erik, 2008. "Estimating the determinants of capital flows to emerging market economies: a maximum likelihood disequilibrium approach," Bank of England working papers 354, Bank of England.
    5. Niall Ferguson & Moritz Schularick, 2005. "The Empire Effect: Country Risk in the First Age of Globalization, 1880-1913," Economic History 0509002, University Library of Munich, Germany.
    6. Tomislav Globan, 2018. "Financial supply cycles in post-transition Europe – introducing a composite index for financial supply," Post-Communist Economies, Taylor & Francis Journals, vol. 30(4), pages 482-505, July.
    7. Dr. Elene Kharabadze & Ioseb Mamukelashvili, 2016. "The Development of Financial Reporting and Auditing Standards throughout the World: Importance of Institutions," Journal of Business & Management (COES&RJ-JBM), , vol. 4(3), pages 130-139, July.
    8. Kinda, Tidiane, 2007. "Increasing private capital flows to developing countries: The role of physical and financial infrastructure," MPRA Paper 19163, University Library of Munich, Germany.
    9. Lo Duca, Marco, 2012. "Modelling the time varying determinants of portfolio flows to emerging markets," Working Paper Series 1468, European Central Bank.

    More about this item

    Keywords

    asymmetric information; capital flows; disequilibrium; rationing;

    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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