Reach for Yield and Fickle Capital Flows
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pandp.20181056.pdf
Description
Published version
Size
490.37 KB
Format
Adobe PDF
Checksum (MD5)
4cc7b38cbd4b8812650f70558e9565cd
Author(s)
Caballero, Ricardo J
Simsek, Alp
Date Issued
May 2018
Journal
American Economic Association Papers and Proceedings
Publisher
American Economic Association
Citation
Caballero, Ricardo J., and Alp Simsek. "Reach for Yield and Fickle Capital Flows." American Economic Association Papers and Proceedings, 108 (May 2018): 493-98 © 2018 American Economic Association
Version
Final published version
Abstract
In Caballero and Simsek (2017), we develop a model of fickle capital flows and show that, when countries are similar, international flows create global liquidity and mitigate crises despite their fickleness. In this paper, we focus on the asymmetric situation of Emerging Markets (EM) exchanging flows with Developed Markets (DM) that feature lower returns but less frequent crises. Relatively high DM returns help to mitigate EM crises by reducing fickle inflows and by providing greater liquidity. The situation dramatically changes as the DM returns fall, as this increases the fickle inflows driven by reach for yield and exacerbates EM crises.
MIT Department
Massachusetts Institute of Technology. Department of Economics
Sloan School of Management
Terms of Use
Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
https://doi.org/10.1257/pandp.20181056
