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Financial liberalization and contagion with unobservable savings

Panetti, Ettore (2014) Financial liberalization and contagion with unobservable savings. International Review of Financial Analysis, Vol. 36 , p. 20-35. ISSN 1057-5219. Article.

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DOI: 10.1016/j.irfa.2014.05.005

Abstract

How does the presence of decentralized market-based channels for borrowing and lending affect financial integration and financial contagion? To answer this question, I develop a two-country model of financial intermediation, where banks have access to country-specific investment technologies, and agents can borrow and lend in an international hidden market. In this environment, the possibility of hidden borrowing and lending has three main effects. First, it improves welfare with respect to the autarkic equilibrium, by allowing gains from “hidden” financial integration. Second, it halts the process of “official” financial integration. Third, it lowers the resilience of the economy to unexpected shocks to fundamentals.

Item Type:Article
ID Code:10209
Status:Published
Refereed:Yes
Uncontrolled Keywords:Financial intermediation, liberalization, financial contagion, hidden trades
Subjects:Area 13 - Scienze economiche e statistiche > SECS-P/01 Economia politica
Divisions:002 Altri enti e centri di ricerca del Nord Sardegna > CRENoS-Centro Ricerche Economiche Nord Sud, Università di Cagliari e Università di Sassari
001 Università di Sassari > 01-a Nuovi Dipartimenti dal 2012 > Scienze economiche e aziendali
Publisher:Elsevier
ISSN:1057-5219
Deposited On:28 Oct 2014 11:49

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