International capital flows and credit market imperfections: A tale of two frictions

• 成果类型: Article; Proceedings Paper
• 署名作者: Martin, Alberto; Taddei, Filippo
• 署名单位: Barcelona School of Economics; Collegio Carlo Alberto
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2012.02.003
• 发表日期: 2013
• 页码: 441-452
• 关键词: Limited pledgeability; adverse selection; International capital flows; Credit market imperfections

摘要

The financial crisis of 2007-08 has underscored the importance of adverse selection in financial markets. This friction has been mostly neglected by macroeconomic models of financial imperfections, which have focused almost exclusively on the effects of limited pledgeability. In this paper, we fill this gap by developing a standard growth model with adverse selection. Our main results are that, by fostering unproductive investment, adverse selection: (i) leads to an increase in the economy's equilibrium interest rate, and; (ii) it generates a negative wedge between the marginal return to investment and the equilibrium interest rate. Under international financial integration, we show how this translates into excessive capital inflows and endogenous cycles. We also extend our model to the more general case in which adverse selection and limited pledgeability coexist. We conclude that both frictions complement one another and show that limited pledgeability exacerbates the effects of adverse selection. (C) 2012 Elsevier B.V. All rights reserved.