Financial Distortions and the Distribution of Global Volatility

Eden, Maya

关键词: ADVANCED ECONOMIES;    ADVERSE EFFECT;    AGGREGATE SUPPLY;    ASSET MARKETS;    AUCTION;   

DOI  :  10.1596/1813-9450-5929
RP-ID  :  WPS5929

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

Why are emerging economies excessivelyvulnerable to shocks to external funding? What was the roleof financial flows from emerging to developed economies insetting the stage for the subprime crisis? This paperaddresses these questions in a simple general equilibriumframework that emphasizes the aggregate implications of themisallocation of funds on the micro level. The analysisshows that the misallocation of funds amplifies volatilityeven in a closed economy. Financial integration betweenrelatively distorted emerging economies and relativelyundistorted developed economies leads to a furtherdivergence in volatility, thereby providing a new and simpleexplanation for the divergent trends in output volatility upto the recent crisis. In the integrated environment, cheapfunding leads to an endogenous deterioration of thefinancial system in developed economies. These predictionsare consistent with a wide variety of microfoundations, inwhich distortions cause productive projects to be relativelymore sensitive to aggregate shocks. The paper provides someempirical evidence for these microfoundations.