Are Asset Price Guarantees Useful for Preventing Sudden Stops?
- Topics:
- Investment and Capital Markets
- Tags:
- Asset,
- Asset Management,
- Asset Price,
- Business Operations,
- Globalization,
- Management,
- National Bureau Of Economic Research,
- Operational Planning,
- Strategy
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Overview: The globalization hazard hypothesis maintains that the current account reversals and asset price collapses observed during 'Sudden Stops' are caused by global capital market frictions. A policy implication of this view is that Sudden Stops can be prevented by offering global investors price guarantees on emerging markets assets. These guarantees, however, introduce a moral hazard incentive for global investors, thus creating a tradeoff by which price guarantees weaken globalization hazard but strengthen international moral hazard. This paper studies the quantitative implications of this tradeoff using a dynamic stochastic equilibrium asset-pricing model.
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Format: PDF | Size: 1,485KB | Date: Mar 2005 | Pages: 46
