Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/111714
Authors: 
Perotti, Enrico
Ahnert, Toni
Year of Publication: 
2015
Series/Report no.: 
Tinbergen Institute Discussion Paper 15-036/IV/DSF89
Abstract: 
Can a wealth shift to emerging countries explain instability in developed countries? Investors exposed to political risk seek safety in countries with better property right protection. This induces private intermediaries to offer safety via inexpensive demandable debt, and increase lending into marginal projects. Because safety conscious foreigners escape any risk by running in some good states, cheap foreign funding leads to larger and more frequent runs. Beyond some scale, foreign runs also induce domestic runs in order to avoid dilution. When excess liquidation causes social losses, a domestic planner may limit the scale of foreign inflows or credit volume.
Subjects: 
capital flows
unstable funding
safe haven
absolute safety
JEL: 
F3
G02
Document Type: 
Working Paper

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