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dc.contributor.authorMourmouras, Alexen_US
dc.contributor.authorRussel, Steven H.en_US
dc.date.accessioned2009-12-08en_US
dc.date.accessioned2010-11-15T10:27:07Z-
dc.date.available2010-11-15T10:27:07Z-
dc.date.issued2009en_US
dc.identifier.urihttp://hdl.handle.net/10419/41577-
dc.description.abstractWe study a simple neoclassical model of investment in a developing country, modified to allow for long-term projects and short-term debt. Early signals indicating low productivity of investment may lead creditors to call loans in early. In such a crisis, firms protected by limited liability default and liquidate capital, even thought they do so at a loss (a 'fire sale'). We show that short-term debt financing is beneficial in good (normal) times: when there is no adverse signal, and thus no need to liquidate capital, investment, the capital-labor ratio, wages and ex post worker utility are all higher than they would be if liquidation were not possible or was prohibited. Capital liquidation exacerbates the effects of negative shocks by lowering the capital-labor ratio and lowering wages in bad times (crises). Capital liquidation raises the variability of wages and hurts workers who cannot insure against wage income (this seems plausible in emerging market economies). Accumulating a stock of international reserves to be used during or after a crisis can mitigate the adverse effects of capital liquidation on wage variability and worker welfare.en_US
dc.language.isoengen_US
dc.publisherCeGE Göttingenen_US
dc.relation.ispartofseriesDiscussion papers // CeGE 88en_US
dc.subject.ddc330en_US
dc.subject.stwInvestitionen_US
dc.subject.stwProjektfinanzierungen_US
dc.subject.stwAuslandsverschuldungen_US
dc.subject.stwLaufzeiten_US
dc.subject.stwLiquidationen_US
dc.subject.stwFinanzmarktkriseen_US
dc.subject.stwWohlfahrtseffekten_US
dc.subject.stwWährungsreservenen_US
dc.subject.stwTheorieen_US
dc.subject.stwEntwicklungsländeren_US
dc.titleFinancial crises, capital liquidation and the demand for international reservesen_US
dc.typeWorking Paperen_US
dc.identifier.ppn614463386en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen_US
dc.identifier.repecRePEc:zbw:cegedp:88-
Appears in Collections:cege-Diskussionspapiere, Universität Göttingen

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