Financial Intermediation, International Risk Sharing, and Reserve Currencies
- (pp. 3038-71)
Abstract
I model the equilibrium risk sharing between countries with varying financial development. The most financially developed country takes greater risks because its financial intermediaries deal with funding problems better. In good times, the more financially developed country consumes more and runs a trade deficit financed by the higher financial income that it earns as compensation for taking greater risk. During global crises, it suffers heavier losses. Its currency emerges as the reserve currency because it appreciates during crises, thus providing a good hedge. I provide evidence that financial net worth plays a crucial role in understanding this asymmetric risk sharing.Citation
Maggiori, Matteo. 2017. "Financial Intermediation, International Risk Sharing, and Reserve Currencies." American Economic Review, 107 (10): 3038-71. DOI: 10.1257/aer.20130479Additional Materials
JEL Classification
- E44 Financial Markets and the Macroeconomy
- F14 Empirical Studies of Trade
- F32 Current Account Adjustment; Short-term Capital Movements
- G01 Financial Crises
- G15 International Financial Markets
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages