Capital Flows and Moral Hazard
I solve for the optimal (state-contingent) contract and find that moral hazard friction is sufficient to explain capital outflows in low output states –- a defining feature of the emerging markets business cycles. On the other hand, the model that also includes limited enforcement is inconsistent with this fact. The model with moral hazard also performs well in explaining quantitative properties of Argentina's business cycle.
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- Kocherlakota, Narayana & Pistaferri, Luigi, 2007.
"Household Heterogeneity and Real Exchange Rates,"
CEPR Discussion Papers
6192, C.E.P.R. Discussion Papers.
- Narayana R. Kocherlakota & Luigi Pistaferri, 2006. "Household Heterogeneity and Real Exchange Rates," Levine's Bibliography 122247000000001275, UCLA Department of Economics.
- Narayana R. Kocherlakota & Luigi Pistaferri, 2006. "Household heterogeneity and real exchange rates," Staff Report 372, Federal Reserve Bank of Minneapolis.
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