THE DEMAND FOR LIQUID ASSETS,CORPORATE SAVING,AND INTERNATIONAL CAPITAL FLOWS |
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Authors: | Philippe Bacchetta Kenza Benhima |
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Abstract: | The recent period of capital outflows from emerging economies has coincided with an increase in their corporate saving. In this paper, we model corporate saving as a demand for liquid assets by credit‐constrained firms in a dynamic open‐economy macroeconomic model. We find that the implications of this model are very different from standard models, because the demand for foreign bonds is a complement to domestic investment rather than a substitute. We show that this complementarity is at work when an emerging economy is on its convergence path or when it has a higher TFP growth rate. This framework is consistent with a number of stylized facts found in high‐growth, high‐investment emerging economies. |
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Keywords: | E22 F21 F41 F43 |
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