Financial Integration and Emerging Market Crises: How Does Financial Integration Cause Severe Sudden Stops

Yamada, Haruna

doi:10.51094/jxiv.514

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Yamada, Haruna Graduate Schoold of Economics, Hitotsubashi university

DOI:

https://doi.org/10.51094/jxiv.514

キーワード:

Financial Integration、 Overborrowing、 Sudden Stops、 Emerging Market Economies、 Occasionally Binding Borrowing Constraint、 World Real Interest Rate

抄録

This paper theoretically investigates the relationship between financial integration and sudden stops by introducing an Interest Coverage Ratio-based borrowing constraint (Yamada, 2023) into an small open economy with tradables and nontradables model. Calibration exercises show that a deeper financial integration makes sudden stops less likely, but worsens the impact of the crises. A deeper financial integration, represented by a looser borrowing constraint, increases average foreign debt and reduces crises probability. Meanwhile, the amount of overborrowing increases, especially during the low world real interest rate periods. Once the borrowing constraint binds, consumption must decrease a lot for the repayment of accumulated borrowing.

利益相反に関する開示

The author declares no conflicts of interest associated with this study.

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Financial Integration and Emerging Market Crises

How Does Financial Integration Cause Severe Sudden Stops