NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Gregory Phelan

24 Hopkins Hall Drive
Schapiro Hall, 314
Economics Department
Williamstown MA 01267

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Institutional Affiliation: Williams College

NBER Working Papers and Publications

February 2019Global Collateral and Capital Flows
with Ana Fostel, John Geanakoplos: w25583
Cross-border financial flows arise when (otherwise identical) countries differ in their abilities to use assets as collateral to back financial contracts. Financially integrated countries have access to the same set of financial instruments, and yet there is no price convergence of assets with identical payoffs, due to a gap in collateral values. Home (financially advanced) runs a current account deficit. Financial flows amplify asset price volatility in both countries, and gross flows driven by collateral differences collapse following bad news about fundamentals. Our results can explain financial flows among rich, similarly-developed countries, and why these flows increase volatility.
 
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