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dc.contributor.authorMourmouras, Alexen
dc.contributor.authorRussel, Steven H.en
dc.date.accessioned2009-12-08-
dc.date.accessioned2010-11-15T10:27:07Z-
dc.date.available2010-11-15T10:27:07Z-
dc.date.issued2009-
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
dc.language.isoengen
dc.publisher|aUniversity of Göttingen, Center for European, Governance and Economic Development Research (cege) |cGöttingenen
dc.relation.ispartofseries|acege Discussion Papers |x88en
dc.subject.ddc330en
dc.subject.stwInvestitionen
dc.subject.stwProjektfinanzierungen
dc.subject.stwAuslandsverschuldungen
dc.subject.stwLaufzeiten
dc.subject.stwLiquidationen
dc.subject.stwFinanzmarktkriseen
dc.subject.stwWohlfahrtseffekten
dc.subject.stwWährungsreservenen
dc.subject.stwTheorieen
dc.subject.stwEntwicklungsländeren
dc.titleFinancial crises, capital liquidation and the demand for international reserves-
dc.type|aWorking Paperen
dc.identifier.ppn614463386en
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen
dc.identifier.repecRePEc:zbw:cegedp:88en

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