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Capital Flows and Asset Prices

In: NBER International Seminar on Macroeconomics 2007

Author

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  • Kosuke Aoki
  • Gianluca Benigno
  • Nobuhiro Kiyotaki
Abstract
After liberalizing international transactions of financial assets, many countries experience large swings in asset prices, capital flows, and aggregate production. This paper studies how the adjustment to capital account liberalization depends upon the degree of development of a domestic financial system, and why the economy with an underdeveloped financial system may be vulnerable to shocks to the domestic and foreign finance. We construct a model of a small open economy in which it is difficult to enforce debtors to repay their debts unless the debts are secured by collateral, and assets usable as collateral for international borrowing are more restricted than domestic borrowing.
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Suggested Citation

  • Kosuke Aoki & Gianluca Benigno & Nobuhiro Kiyotaki, 2009. "Capital Flows and Asset Prices," NBER Chapters, in: NBER International Seminar on Macroeconomics 2007, pages 175-216, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:3006
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    JEL classification:

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