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Capital Flows and the Global Collateral Cycle

Author

Listed:
  • Ana Fostel

    (University of Virginia)

  • John Geanakoplos

    (Yale University)

  • Gregory Phelan

    (Williams College)

Abstract

Cross-country disparities in collateral technologies alone can account for large capital flows among mature economies, and allow the most advanced country to run a permanent trade deficit. When the collateral technology advantage is in creating negative beta (super safe) financial assets backed by positive beta assets, a Global Collateral Cycle emerges, with pro-cyclical gross and net flows and increased global asset price volatility. The supply of super safe assets is necessarily curtailed in downturns, providing a complementary (supply) channel to the flight to safety (demand) channel for explaining why US safe asset prices rise during crises.

Suggested Citation

  • Ana Fostel & John Geanakoplos & Gregory Phelan, 2026. "Capital Flows and the Global Collateral Cycle," Cowles Foundation Discussion Papers 2521, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:2521
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    File URL: https://cowles.yale.edu/sites/default/files/2026-04/d2521.pdf
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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