Uncertainty and International Capital Flows

Electoral Uncertainty and the Volatility of International Capital Flows∗

I study a small open economy in which electoral uncertainty affects and is affected by capital inflows. Two candidates, one favoring workers and another favoring entrepreneurs, run for office; the winner chooses tax policy, which affects investment returns. A pro labor electoral victory results in a "sudden stop" in investment and capital flows, reflecting a time inconsistency problem. While th...

Controlling International Capital Flows

The East Asian financial crisis in the late 1990s has challenged the widely-held belief that international financial markets should be deregulated. The common arguments both for and against free international capital flows are analysed and contrasted. Given the existence of various distortions and market failures in the global economy, there is a case for some degree of control. The extension a...

International Capital Flows

Essays on International Capital Flows

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Securitization, Leverage, Tranching, and International Capital Flows

We show that (i) different collateral requirements across countries in securitized markets lead to net international capital flows, and (ii) the ability to tranche asset-backed securities in one country leads to offsetting portfolio flows, creating gross financial flows. We use a general equilibrium model with two countries, collateralized borrowing, and securitized markets. Financial systems d...