scholarly journals International Credit Flows and Pecuniary Externalities

2015 ◽  
Vol 7 (1) ◽  
pp. 297-338 ◽  
Author(s):  
Markus K. Brunnermeier ◽  
Yuliy Sannikov
Keyword(s):  
Incomplete Markets ◽  
Production Capacity ◽  
Capital Controls ◽  
Terms Of Trade ◽  
Equilibrium Outcome ◽  
Short Term ◽  
Stochastic Growth ◽  
Fire Sales ◽  
Pecuniary Externalities ◽  
International Credit

This paper develops a dynamic two-country neoclassical stochastic growth model with incomplete markets. Short-term credit flows can be excessive and reverse suddenly. The equilibrium outcome is constrained inefficient due to pecuniary externalities. First, an undercapitalized country borrows too much since each firm does not internalize that an increase in production capacity undermines their output price, worsening their terms of trade. From an ex ante perspective each firm undermines the natural “terms of trade hedge.” Second, sudden stops and fire sales lead to sharp price drops of illiquid capital. Capital controls or domestic macro-prudential measures that limit short-term borrowing can improve welfare. (JEL F32, F43, G15, O41)

scholarly journals Dynamic contracting with limited commitment and the ratchet effect

2020 ◽  
Vol 15 (2) ◽  
pp. 583-623 ◽  
Author(s):  
Dino Gerardi ◽  
Lucas Maestri
Keyword(s):  
Adverse Selection ◽  
Prior Probability ◽  
Terms Of Trade ◽  
Limited Commitment ◽  
Equilibrium Outcome ◽  
Short Term ◽  
Ratchet Effect ◽  
Dynamic Contracting ◽  
The Relationship

We study dynamic contracting with adverse selection and limited commitment. A firm (the principal) and a worker (the agent) interact for potentially infinitely many periods. The worker is privately informed about his productivity and the firm can only commit to short‐term contracts. The ratchet effect is in place since the firm has the incentive to change the terms of trade and offer more demanding contracts when it learns that the worker is highly productive. As the parties become arbitrarily patient, the equilibrium outcome takes one of two forms. If the prior probability of the worker being productive is low, the firm offers a pooling contract and no information is ever revealed. In contrast, if this prior probability is high, the firm fires the unproductive worker at the beginning of the relationship.

Economic Complexity and Trade Diversification in the Western Hemisphere Between 1962 and 2017

2021 ◽  
pp. 115-147
Author(s):  
Jorge Mauricio Falcón Gómez ◽  
Fernando Martín Mayoral
Keyword(s):  
Financial Markets ◽  
Transaction Costs ◽  
Trade Openness ◽  
Terms Of Trade ◽  
Western Hemisphere ◽  
Short Term ◽  
Economic Complexity ◽  
Comparative Advantages ◽  
Negative Effect

Trade diversification patterns help explain the level of utilization of trade opportunities by countries, mainly the least developed. Empirical analyses show an inverse U relationship between trade diversification and level of development. Trade diversification measures used do not take into account differences in complexity of exports, and complexity indices only consider products with comparative advantages. This study seeks to cover both gaps by analyzing the differences in the determinants of trade diversification, considering the complexity of products exported by 19 Western Hemisphere countries from 1962 to 2017. The results show that after controlling for economic complexity, the inverted U relationship disappears. Development of financial markets positively affects the complexity of trade diversification in the long term, while the terms of trade that have a negative effect on trade diversification does not affect the complexity-corrected indices. In the short term, transaction costs and trade openness appear to have a significant effect.

Morocco's phosphate company is set for an export surge

2017 ◽  
Keyword(s):  
Credit Rating ◽  
Rapid Development ◽  
Atlantic Coast ◽  
Production Capacity ◽  
Value Added ◽  
Tax Credits ◽  
Content Type ◽  
International Credit ◽  
The Government ◽  
The Impact

Significance Meanwhile, the Office Cherifien des Phosphates (OCP), Morocco’s government-controlled phosphate company, has started production in a new fertiliser unit at its main processing and export centre in Jorf Lasfar, on the Atlantic coast. Morocco’s traditional phosphate industry has been eclipsed in recent years by the rapid development of new sectors such as the automotive and aeronautical industries, which are similarly oriented towards exports. Impacts OCP’s fertiliser production capacity will increase by 50% during 2018, boosting the value added to its phosphate mining activities. Increased volumes of exports of phosphates and fertilisers will counterbalance the impact of relatively low international prices. Once the new cycle of investment is complete, OCP will be in a position to pay back tax credits it has received from the government. Repayment of tax credits would boost OCP's international credit rating.

The Obsolescence of Capital Controls?: Economic Management in an Age of Global Markets

1993 ◽  
Vol 46 (1) ◽  
pp. 50-82 ◽  
Author(s):  
John B. Goodman ◽  
Louis W. Pauly
Keyword(s):  
Financial Markets ◽  
Multinational Firms ◽  
Capital Controls ◽  
International Financial Markets ◽  
International Capital ◽  
Short Term ◽  
Economic Management ◽  
Capital Movements ◽  
International Capital Movements ◽  
Ideological Change

Between the late 1970s and the early 1990s, after decades of trying to limit short-term international capital movements, advanced industrial states moved decisively in the direction of decontrol. What has driven this remarkable policy convergence? The answer lies not in ideological change or shifts in relative political power, but in the prior development of international financial markets and in the increasing globalization of business. In a policy environment fundamentally reshaped by these factors, financial institutions and multinational firms were able to threaten or implement strategies of evasion and exit. Thus, the usefulness of controls declined as their effective costs rose sharply. In this light, the cases of Japan, Germany, Italy, and France are examined. The analysis points to the tightening link between short-term capital movements and foreign direct investment, issues that have long been treated as conceptually distinct. It also underlines the intricate connection between national policies governing capital movements and those aimed at managing international financial markets.

Pros and Cons of Capital Controls in the Presence of Incomplete Markets

2005 ◽  
Vol 49 (1) ◽  
pp. 79-93 ◽  
Author(s):  
Alexei G. Orlov
Keyword(s):  
Exchange Rate ◽  
Incomplete Markets ◽  
Financial Stability ◽  
Capital Mobility ◽  
Capital Controls ◽  
Focal Points ◽  
Financial Volatility ◽  
Exchange Rate Fluctuations ◽  
Pros And Cons ◽  
Frequency Domain Techniques

This paper justifies the relevance of capital controls on the basis of markets' incompleteness, examines the pros and cons of restrictions on capital mobility, surveys the literature's recent attempts to assess the effectiveness of capital controls, and delineates the focal points of debate among researchers and policymakers. Additionally, the link between capital controls and financial stability is examined using frequency domain techniques. The study of the Chilean stock market and Peso-Dollar exchange rate fluctuations reveals that financial volatility due to irregular components increased after the removal of capital controls in September 1998.

Sign in / Sign up

Export Citation Format

Share Document