Abstract

http://ssrn.com/abstract=1747850
 
 

References (59)



 
 

Citations (8)



 


 



Financial Integration, Entrepreneurial Risk and Global Imbalances


Vasia Panousi


University of Montreal, Department of Economics

George-Marios Angeletos


Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

December 11, 2010


Abstract:     
How does financial integration impact capital accumulation, current-account dynamics, and cross-country inequality? We investigate this question within a two-country, general-equilibrium, incomplete-markets model that focuses on the importance of idiosyncratic entrepreneurial risk - a risk that introduces, not only a precautionary motive for saving, but also a wedge between the interest rate and the marginal product of capital. Our contribution is to show that this friction provides a simple explanation for the emergence of global imbalances, a resolution to the empirical puzzle that capital often fails to flow from the rich or slow-growing countries to the poor or fast-growing ones, and a set of policy lessons regarding the intertemporal costs and benefits of capital-account liberalization.

Number of Pages in PDF File: 43


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Date posted: January 26, 2011  

Suggested Citation

Panousi, Vasia and Angeletos, George-Marios, Financial Integration, Entrepreneurial Risk and Global Imbalances (December 11, 2010). Available at SSRN: http://ssrn.com/abstract=1747850 or http://dx.doi.org/10.2139/ssrn.1747850

Contact Information

Vasia Panousi (Contact Author)
University of Montreal, Department of Economics ( email )
C.P. 6128 succursale Centre-ville
Montreal, Quebec H3C 3J7
Canada
HOME PAGE: http://https://sites.google.com/site/panousi/
George-Marios Angeletos
Massachusetts Institute of Technology (MIT) - Department of Economics ( email )
50 Memorial Drive
Room E52-251b
Cambridge, MA 02142
United States
617-452-3859 (Phone)
617-253-1330 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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References:  59
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