North-South lending and endogenous domestic capital market inefficiencies

Mark Gertler, Kenneth Rogoff

    Research output: Contribution to journalArticle

    Abstract

    We develop an open-economy model of intertemporal trade under asymmetric information. Capital market imperfections are endogenous and depend on a country's stage of economic development. Relative to the perfect-information benchmark, North-South capital flows are dampened (and possibly reversed) and world interest rates are lower. Whereas riskless rates are equalized across borders, the domestic loan rate is higher in poorer countries. The model can be applied to a number of policy issues including the debt-overhang problem, the indexation of foreign public debts, and the effect of income distribution on growth.

    Original languageEnglish (US)
    Pages (from-to)245-266
    Number of pages22
    JournalJournal of Monetary Economics
    Volume26
    Issue number2
    DOIs
    StatePublished - 1990

    Fingerprint

    Capital markets
    Lending
    Market inefficiency
    Asymmetric information
    Indexation
    Economic development
    Distribution of income
    Benchmark
    Open economy
    Public debt
    Interest rates
    Capital flows
    Perfect information
    Loan rates
    Debt overhang
    Capital market imperfections

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Finance

    Cite this

    North-South lending and endogenous domestic capital market inefficiencies. / Gertler, Mark; Rogoff, Kenneth.

    In: Journal of Monetary Economics, Vol. 26, No. 2, 1990, p. 245-266.

    Research output: Contribution to journalArticle

    Gertler, Mark ; Rogoff, Kenneth. / North-South lending and endogenous domestic capital market inefficiencies. In: Journal of Monetary Economics. 1990 ; Vol. 26, No. 2. pp. 245-266.
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