Capital Flows and Moral Hazard

I solve for the optimal (state-contingent) contract and find that moral hazard friction is sufficient to explain capital outflows in low output states –- a defining feature of the emerging markets business cycles. On the other hand, the model that also includes limited enforcement is inconsistent with this fact. The model with moral hazard also performs well in explaining quantitative properties of Argentina's business cycle.

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Year of publication:	2007
Authors:	Tsyrennikov, Viktor
Institutions:	Society for Economic Dynamics - SED

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Extent:	application/pdf
Series:	2007 Meeting Papers.
Type of publication:	Book / Working Paper
Notes:	The text is part of a series 2007 SED Meeting Papers Number 455
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10011082066