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The Center and the Periphery: Two Hundred Years of International Borrowing Cycles

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  • Kaminsky, Graciela

Abstract

A common belief in both academic and policy circles is that capital flows to the emerging periphery are excessive and ending in crises. One of the most frequently mentioned culprits is the cycles of monetary easing and tightening in the financial center. Also, many focus on the role of crises in the financial center, pointing to excess international borrowing predating crises in the financial center and global retrenchment in capital flows in its aftermath. I re-examine these views using a newly-constructed database on capital flows spanning two hundred years. Extending the study of capital flows to the first episode of financial globalization has two major advantages: During this episode, monetary policy in the financial center is constrained by the adherence to the Gold Standard, thus providing a benchmark for capital flow cycles in the absence of an active role of central banks in the financial centers. Second, panics in the financial center are rare disasters that need to be examined in a longer historical episode. I find that boom-bust capital flow cycles in the periphery are milder in the second episode of financial globalization when the financial center follows a cyclical monetary policy. Also, cyclical monetary policy in the financial center is far more pronounced in times of crises in the financial center, cutting short capital flow bonanzas in the periphery and injecting liquidity in the aftermath of the crisis.

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  • Kaminsky, Graciela, 2017. "The Center and the Periphery: Two Hundred Years of International Borrowing Cycles," MPRA Paper 82125, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:82125
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    Cited by:

    1. Shiyi Wang, 2019. "Capital Flow Volatility: The Effects of Financial Development and Global Financial Conditions," 2019 Papers pwa945, Job Market Papers.
    2. Ricardo Sabbadini, 2018. "Loss Aversion and Search for Yield in Emerging Markets Sovereign Debt," Working Papers, Department of Economics 2018_16, University of São Paulo (FEA-USP).
    3. Krisztina Soreg & Guillermo Bermudez-Gonzalez, 2021. "Measuring the Socioeconomic Development of Selected Balkan Countries and Hungary: A Comparative Analysis for Sustainable Growth," Sustainability, MDPI, Open Access Journal, vol. 13(2), pages 1-20, January.

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    More about this item

    Keywords

    International borrowing cycles; systemic and idiosyncratic capital flow bonanzas;

    JEL classification:

    • F3 - International Economics - - International Finance
    • F30 - International Economics - - International Finance - - - General
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F6 - International Economics - - Economic Impacts of Globalization
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance

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