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International liquidity rents, Volume 1
 
Author:Eden, Maya; Country:World;
Date Stored:2013/05/29Document Date:2013/05/01
Document Type:Policy Research Working PaperSubTopics:Economic Theory & Research; Emerging Markets; Debt Markets; Bankruptcy and Resolution of Financial Distress; Currencies and Exchange Rates
Language:EnglishMajor Sector:Finance
Rel. Proj ID:1W-Capital Flows And Financial Integration -- -- P053639;Region:The World Region
Report Number:WPS6462Sub Sectors:General finance sector
Collection Title:Policy Research working paper ; no. WPS 6462TF No/Name:TF040145-WORLD:; TF094565-KCP II - GLOBALIZATION, RISK, AND CRISES; TF092859-KCP - CAPITAL RAISING ACTIVITY IN DOMESTIC AND INTERNATIONAL MARKETS; TF040198-WORLD:; TF098583-KCP II - On the use of domestic and international debt markets; TF092864-CAUSES AND CONSEQUENCES OF MACROECONOMIC VOLATILITY; BBRSB-BB RESEARCH SUPPORT BUDGET; TF010688-KCP II - Understanding Capital Flows to Developing Countries
Volume No:1  

Summary: This paper presents a model of global liquidity shortages. Liquid claims are enforceable promises that play a transaction role. Since developed economies have a comparative advantage in creating liquidity, they export liquid claims to emerging economies, resulting in a permanent current account deficit. This model suggests that unrestricted liquidity flows are (a) welfare reducing for emerging economies and (b) Pareto inefficient. The inefficiency results both from excessive investment for the purpose of creating collateral-backed liquid claims, and from excessive global fragility with respect to collateral shocks.

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