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Are Asset Price Guarantees Useful for Preventing Sudden Stops?A Quantitative Investigation of the Globalization Hazard-Moral Hazard Tradeoff, Enrique Mendoza, Ceyhun Bora Durdu

Abstract
An implication of the "globalization hazard" hypothesis is that sudden stops could be prevented by offering foreign investors price guarantees on emerging markets assets. These guarantees create a tradeoff, however, because they weaken globalization hazard by creating international moral hazard. We study this tradeoff using an equilibrium asset-pricing model. Without guarantees, margin calls and trading costs cause Sudden Stops driven by Fisher's debt-deflation process. Price guarantees prevent this deflation by propping up foreign asset demand, but their effectiveness and welfare implications depend critically on the price elasticity of foreign demand and on making the guarantees contingent on debt levels
Table Of Contents
""Contents""; ""I. INTRODUCTION""; ""II. A MODEL OF GLOBALIZATION HAZARD AND PRICE GUARANTEES""; ""III. CHARACTERIZING THE GLOBALIZATION HAZARD-MORAL HAZARD TRADEOFF""; ""IV. QUANTITATIVE ANALYSIS""; ""V. NORMATIVE IMPLICATIONS AND SENSITIVITY ANALYSIS""; ""VI. CONCLUSIONS""; ""REFERENCES""
Language
eng
Literary Form
non fiction
Note
"March 2006."
Physical Description
1 online resource (42 p.)
Specific Material Designation
remote
Form Of Item
online
Isbn
9786613830630

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