Volatile capital flows and financial integration: The role of moral hazard

• 成果类型: Article
• 署名作者: Kikuchi, Tomoo; Stachurski, John; Vachadze, George
• 署名单位: Nanyang Technological University; Australian National University; City University of New York (CUNY) System; College of Staten Island (CUNY); City University of New York (CUNY) System
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2018.03.009
• 发表日期: 2018
• 页码: 170-192
• 关键词: capital flows; moral hazard; cycles; Financial integration

摘要

We study a model in which income and capital flows between countries are jointly determined in a world economy with integrated financial markets. In a setting that combines risky entrepreneurial activity with moral hazard, we find that a shift from autarky to financial integration leads to boom-bust cycles in capital flows, output and consumption. Moral hazard causes cycles because financial intermediaries incentivize effort by insisting entrepreneurs take an equity share in their own projects. The size of this stake rises with wealth, discouraging entrepreneurship and inhibiting capital formation. The reverse is true when wealth falls, generating cycles. (C) 2018 Elsevier Inc. All rights reserved.