International Liquidity Rents

This paper presents a model of global liquidity shortages. Liquid claims are enforceable promises that play a transaction role. Since developed economies have a comparative advantage in creating liquidity, they export liquid claims to emerging econ...

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Bibliographic Details
Main Author:	Eden, Maya
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2013
Subjects:	AGGREGATE DEMAND AGGREGATE INCOME AMOUNT OF COLLATERAL ASSETS BENCHMARK BIDS BILL BILLS BINDING CONSTRAINT BINDING CONSTRAINTS BROAD MONEY BUDGET CONSTRAINT BUDGET CONSTRAINTS BUSINESS CYCLES CAPITAL ACCUMULATION CAPITAL CONTROLS CAPITAL MARKET CAPITAL MARKET INTEGRATION CAPITAL SHARE CAPITAL STOCK CAPITAL STOCKS CD CENTRAL BANK CLAIM CLOSED ECONOMY COLLATERAL COMPARATIVE ADVANTAGE CONSUMPTION GROWTH CONSUMPTION PATH CONSUMPTION PATHS CONSUMPTION SMOOTHING COORDINATION FAILURE CORPORATE BONDS CREDIT BOOMS CURRENCY CURRENT ACCOUNT CURRENT ACCOUNT BALANCE CURRENT ACCOUNT BALANCES CURRENT ACCOUNT DEFICIT CURRENT ACCOUNT IMBALANCES CURRENT ACCOUNT SURPLUS DEBT DECLINE IN INVESTMENT DEPRECIATION DEPRECIATION RATE DEVELOPMENT POLICY DIVIDEND DIVIDEND INCOME DOMESTIC FINANCIAL SYSTEM DOMESTIC LIQUIDITY DOMESTIC PRICES DOWNWARD PRESSURE ECONOMIC EFFICIENCY ECONOMIC GROWTH ECONOMIC POLICY ELASTICITY ELASTICITY OF SUBSTITUTION EMERGING ECONOMIES EMERGING ECONOMY EMERGING MARKET EMERGING MARKETS ENFORCEABILITY ENFORCEMENT POWER EQUATIONS EQUILIBRIA EQUILIBRIUM EQUILIBRIUM CONDITION EQUILIBRIUM CONDITIONS EQUILIBRIUM LEVELS EQUILIBRIUM PRICES EXCESS DEMAND EXCHANGE RATE EXCHANGE RATE VOLATILITY EXPECTED RETURN EXPORTER EXTERNALITIES EXTERNALITY FEDERAL RESERVE FINANCIAL CONSTRAINT FINANCIAL DEVELOPMENT FINANCIAL FRAGILITY FINANCIAL INTEGRATION FINANCIAL INTERMEDIATION FINANCIAL LIBERALIZATION FINANCIAL MARKETS FINANCIAL SHOCKS FULL EMPLOYMENT GDP GDP PER CAPITA GENERAL EQUILIBRIUM GLOBAL IMBALANCES GLOBAL INVESTMENT GLOBAL LIQUIDITY GLOBAL MARKETS GLOBALIZATION GOVERNMENT BOND GOVERNMENT BONDS GROSS CAPITAL FORMATION GROSS DOMESTIC PRODUCT GROWTH RATE IMPORT IMPORTS INEFFICIENCY INELASTIC DEMAND INFLATION INTEREST RATE INTEREST RATE DECLINES INTEREST RATES INTERNATIONAL BANK INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL FLOWS INTERNATIONAL CURRENCY INTERNATIONAL ECONOMICS INTERNATIONAL FINANCIAL INTEGRATION INTERNATIONAL TRADE INVESTING INVESTMENT DECISIONS INVESTMENT OPPORTUNITIES LABOR FORCE LABOR MARKET LENDER LENDERS LEVERAGE LIQUIDITY LIQUIDITY CONSTRAINT LIQUIDITY CONSTRAINTS LIQUIDITY PREMIUM LIQUIDITY PREMIUMS LOW INTEREST RATES M3 MACROECONOMIC EFFECTS MACROECONOMICS MARGINAL PRODUCT MARGINAL PRODUCTIVITY MONETARY ECONOMICS MONETARY MODEL MONETARY POLICY MORTGAGE MORTGAGE LOANS MULTIPLIERS NATIONAL CURRENCY NET CAPITAL NET EXPORTS OPEN ECONOMY OPTIMIZATION PERMANENT INCOME POLITICAL ECONOMY PRIVATE MONEY PRODUCTION INPUTS PRODUCTION OUTPUT PRODUCTIVITY PURCHASING POWER RANDOM VARIABLE RATE OF RETURN RECESSION RELIANCE ON COLLATERAL REPO REPO MARKET RESERVE CURRENCIES RETURNS RISK SHARING SAVINGS SECURITIES SEIGNIORAGE SHARE OF CAPITAL SHAREHOLDERS SOURCE OF UNCERTAINTY STEADY STATE STEADY STATE LEVEL STEADY STATE LEVELS STICKY WAGES SUBSTITUTION EFFECT SURPLUS TAX TAX REVENUES TOTAL OUTPUT TRADE BALANCE TRADE BALANCES TRANSACTION TRANSACTION COSTS TREASURIES TREASURY TREASURY RATE UNEMPLOYMENT UPWARD PRESSURE USE OF COLLATERAL VENTURE CAPITALIST WAGES WEALTH WORKING CAPITAL WORLD DEVELOPMENT INDICATORS
Online Access:	http://documents.worldbank.org/curated/en/2013/05/17772023/ http://hdl.handle.net/10986/15568

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Summary:	This paper presents a model of global liquidity shortages. Liquid claims are enforceable promises that play a transaction role. Since developed economies have a comparative advantage in creating liquidity, they export liquid claims to emerging economies, resulting in a permanent current account deficit. This model suggests that unrestricted liquidity flows are (a) welfare reducing for emerging economies and (b) Pareto inefficient. The inefficiency results both from excessive investment for the purpose of creating collateral-backed liquid claims, and from excessive global fragility with respect to collateral shocks.

International Liquidity Rents

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