Capital inflows and books in asset prices: evidence from a panel of countries

Policymakers and academics often believe that large capital inflows are associated with booms in asset prices and therefore with a higher risk of financial crisis. The belief is supported by the theoretical works of Krugman (1998) Caballero and Krishnamurthy (2006) Aoki Benigno and Kiyotaki (2009) K...

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Autor principal:	Olaberría F., Eduardo
Formato:	Artículo
Lenguaje:	eng
Publicado:	Banco Central de Chile 2019
Materias:	CAPITAL PRECIOS
Acceso en línea:	https://hdl.handle.net/20.500.12580/3799
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spelling	oai-20.500.12580-37992021-04-24T11:07:36Z Capital inflows and books in asset prices: evidence from a panel of countries Olaberría F., Eduardo CAPITAL PRECIOS Policymakers and academics often believe that large capital inflows are associated with booms in asset prices and therefore with a higher risk of financial crisis. The belief is supported by the theoretical works of Krugman (1998) Caballero and Krishnamurthy (2006) Aoki Benigno and Kiyotaki (2009) Korinek (2010 2011) and Adam Kuang and Marcet (2011). Though different these models provide a simple parable. When capital inflows enter an economy the demand for assets that are at a relatively fixed supply increases and asset prices move up. In general because of financial market imperfections such as adverse selection and moral hazard the economy’s borrowing capability is limited by the value of its assets. Thus the initial increase in asset prices increases the economy’s credit limit promoting more capital inflows. New rounds of capital inflows evolve into a boom in asset prices through a sort of snowball effect in which higher asset prices make financial conditions of the economy seem sounder than they actually are promoting more capital inflows that in turn push asset prices even higher. 2019-11-01T00:06:20Z 2019-11-01T00:06:20Z 2014 Artículo 978-956-7421-43-5 https://hdl.handle.net/20.500.12580/3799 eng Series on Central Banking Analysis and Economic Policies no. 18 Attribution-NonCommercial-NoDerivs 3.0 Chile http://creativecommons.org/licenses/by-nc-nd/3.0/cl/ .pdf Sección o Parte de un Documento p. 255-290 application/pdf Banco Central de Chile
institution	Banco Central
collection	Banco Central
language	eng
topic	CAPITAL PRECIOS
spellingShingle	CAPITAL PRECIOS Olaberría F., Eduardo Capital inflows and books in asset prices: evidence from a panel of countries
description	Policymakers and academics often believe that large capital inflows are associated with booms in asset prices and therefore with a higher risk of financial crisis. The belief is supported by the theoretical works of Krugman (1998) Caballero and Krishnamurthy (2006) Aoki Benigno and Kiyotaki (2009) Korinek (2010 2011) and Adam Kuang and Marcet (2011). Though different these models provide a simple parable. When capital inflows enter an economy the demand for assets that are at a relatively fixed supply increases and asset prices move up. In general because of financial market imperfections such as adverse selection and moral hazard the economy’s borrowing capability is limited by the value of its assets. Thus the initial increase in asset prices increases the economy’s credit limit promoting more capital inflows. New rounds of capital inflows evolve into a boom in asset prices through a sort of snowball effect in which higher asset prices make financial conditions of the economy seem sounder than they actually are promoting more capital inflows that in turn push asset prices even higher.
format	Artículo
author	Olaberría F., Eduardo
author_facet	Olaberría F., Eduardo
author_sort	Olaberría F., Eduardo
title	Capital inflows and books in asset prices: evidence from a panel of countries
title_short	Capital inflows and books in asset prices: evidence from a panel of countries
title_full	Capital inflows and books in asset prices: evidence from a panel of countries
title_fullStr	Capital inflows and books in asset prices: evidence from a panel of countries
title_full_unstemmed	Capital inflows and books in asset prices: evidence from a panel of countries
title_sort	capital inflows and books in asset prices: evidence from a panel of countries
publisher	Banco Central de Chile
publishDate	2019
url	https://hdl.handle.net/20.500.12580/3799
work_keys_str_mv	AT olaberriafeduardo capitalinflowsandbooksinassetpricesevidencefromapanelofcountries
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Capital inflows and books in asset prices: evidence from a panel of countries

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