Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5084782 | International Review of Financial Analysis | 2014 | 16 Pages |
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.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Ettore Panetti,