Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Two striking facts about international capital flows in emerging economies motivate this paper: (1) Governments hold large amounts of international reserves, for which they obtain a return lower than their borrowing cost. (2) Purchases of domestic assets by nonresidents and purchases of foreign assets by residents are both procyclical and collapse during crises. We propose a dynamic model of endogenous default that can account for these facts. The government faces a trade-off between the benefits of keeping reserves as a buffer against rollover risk and the cost of having larger gross debt positions. Long-duration bonds, the countercyclical default premium, and sudden stops are important for the quantitative success of the model.

Capital movements --- Default (Finance) --- Risk --- Economics --- Uncertainty --- Probabilities --- Profit --- Risk-return relationships --- Finance --- Finance, Public --- Repudiation --- Capital flight --- Capital flows --- Capital inflow --- Capital outflow --- Flight of capital --- Flow of capital --- Movements of capital --- Balance of payments --- Foreign exchange --- International finance --- Econometric models. --- Foreign exchange reserves --- Currency reserves, Foreign --- Foreign currency reserves --- Foreign reserves (Foreign exchange reserves) --- International reserves (Foreign exchange reserves) --- Reserves, Foreign exchange --- Reserves (Accounting) --- E-books --- Banks and Banking --- Exports and Imports --- Financial Risk Management --- Investments: Bonds --- Macroeconomics --- Current Account Adjustment --- Short-term Capital Movements --- International Lending and Debt Problems --- Open Economy Macroeconomics --- International Investment --- Long-term Capital Movements --- Personal Income, Wealth, and Their Distributions --- Monetary Policy --- Debt --- Debt Management --- Sovereign Debt --- General Financial Markets: General (includes Measurement and Data) --- International economics --- Banking --- Investment & securities --- Sudden stops --- Personal income --- Reserves accumulation --- Debt refinancing --- Bonds --- Central banks --- National accounts --- Asset and liability management --- Financial institutions --- Income --- Mexico