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The Two Crises of International Economics

  • Michael P. Dooley
  • Peter M. Garber
  • David Folkerts-Landau

In this essay, we argue that key assumptions in international macroeconomic theory, though useful for understanding the economic relationships among developed countries, have been pushed beyond their competence to include relationships between developed economies and emerging markets. The Achilles heel of this extended development model is the assumption that threats to deprive the debtor countries of gains from trade provide incentives for poor countries to repay more than trivial amounts of international debt. Replacing this assumption with the idea that collateral is required to support gross international capital flows suggests that the pattern of current account balances seen in recent years is a sustainable equilibrium.

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File URL: http://www.nber.org/papers/w13197.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13197.

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Date of creation: Jun 2007
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Handle: RePEc:nbr:nberwo:13197
Note: IFM
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  1. Michael P. Dooley & David Folkerts-Landau & Peter M. Garber, 2005. "Savings Gluts and Interest Rates: The Missing Link to Europe," NBER Working Papers 11520, National Bureau of Economic Research, Inc.
  2. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2004. "The Revived Bretton Woods System: The Effects of Periphery Intervention and Reserve Management on Interest Rates & Exchange Rates in Center Countries," NBER Working Papers 10332, National Bureau of Economic Research, Inc.
  3. Ricardo J. Caballero, 2006. "On the Macroeconomics of Asset Shortages," NBER Working Papers 12753, National Bureau of Economic Research, Inc.
  4. Michael P. Dooley & David Folkerts-Landau & Peter M. Garber, 2004. "The US Current Account Deficit and Economic Development: Collateral for a Total Return Swap," NBER Working Papers 10727, National Bureau of Economic Research, Inc.
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