Globalization and Emerging Markets: With or Without Crash?

financial crisis, financial integration, trade integration

Globalization and Emerging Markets: With or Without Crash?

This paper develops a theory of financial crisis based on the demand side of the economy. We analyze the impact of financial and trade globalizations on asset prices, investment and the possibility of self-fulfilling financial crashes. In a two-country model, we show that financial and trade globalizations have different effects on asset prices, investment and income in the emerging market and in the industrialized country. Whereas trade globalization always has a positive effect on the emerging market, financial globalization may not, especially when trade costs are high. For intermediate levels of financial transaction costs and high levels of trade costs, pessimistic expectations can be self-fulfilling and may lead to a collapse in demand for goods and assets of the emerging market. Such a crash in asset prices is accompanied by a current account reversal, a drop in income and investment and more market incompleteness. We show that countries with lower income are more prone to such demand-based financial crashes. Our model can replicate the main stylized facts of financial crashes in emerging markets. Our results strongly suggest that emerging markets should liberalize trade in goods before trade in assets.

Financial Super-Markets: Size Matters for Asset Trade

We introduce a new theoretical framework to analyze imperfectly competitive financial markets and trade in assets in an international context. We present a two-country macroeconomic model in which agents are risk averse, assets are imperfect substitutes, the number of financial assets is endogenous, and cross-border asset trade entails transaction costs. We show that demand effects have important implications for the link between market size, asset prices and financial market development. These effects are consistent with existing empirical evidence. Due to co-ordination failures, the extent of financial market incompleteness is inefficiently high. We also analyze the impact of domestic transaction costs and issuing costs on financial markets and returns.

Globalization and Emerging Markets: With or Without Crash?.

We analyze the effects of financial and trade globalization on the likelihood of financial crashes in emerging markets. While trade globalization always makes crashes less likely, financial globalization may make them more likely, especially when trade costs are high. Pessimistic expectations can be self-fulfilling and lead to a collapse in demand for goods and assets. Such a crash comes with a current account reversal and drops in income and investment. Lower-income countries are more prone to such demand-based financial crises. A quantitative evaluation shows our model is consistent with the main stylized facts of financial crashes in emerging markets.

Financial Globalization and Emerging Markets: With or Without Crash?

We analyze the impact of financial globalization on asset prices, investment and the possibility of crashes driven by self-fulfilling expectations in emerging markets. In a two-country model with one emerging market (intermediate income level) and one industrialized country (high income level), we show that liberalization of capital flows increases asset prices, investment and income in the emerging market. However, for intermediate levels of international financial transaction costs, we find that pessimistic expectations can be self-fulfilling, leading to a financial crash. The crash is accompanied by capital flight, a drop in income and investment below the financial autarky level and more market incompleteness. We show that emerging markets are more prone to financial crashes simply because they have a lower income level and not because of the existence of market failures (moral hazard or credit constraints), bad monetary policies or exchange rate regimes.

Financial Super-Markets: Size Matters for Asset Trade

This paper presents a new theoretical framework to analyze=20 financial markets in an international context. We build a two-country=20 macroeconomic model in which agents are risk averse, assets are imperfect=20 substitutes, the number of financial assets is endogenous, and cross-border= =20 asset trade entails transaction costs. We show that demand effects have=20 important implications for the link between market size, asset prices and=20 financial market development. These effects are consistent with the=20 existing empirical evidence. Due to co-ordination failures, the extent of=20 financial market incompleteness is inefficiently high. We also analyze the= =20 impact of domestic transaction costs and issuing costs on financial markets= =20 and returns.

Globalization and Emerging Markets: With or Without Crash?

We analyze the effects of financial and trade globalization on the likelihood of financial crashes in emerging markets. While trade globalization always makes crashes less likely, financial globalization may make them more likely, especially when trade costs are high. Pessimistic expectations can be self-fulfilling and lead to a collapse in demand for goods and assets. Such a crash comes with a current account reversal and drops in income and investment. Lower-income countries are more prone to such demand-based financial crises. A quantitative evaluation shows our model is consistent with the main stylized facts of financial crashes in emerging markets

Transferable Control

In this paper, we introduce the notion of transferable control, defined as a situation where one party (the principal, say) can transfer control to another party (the agent) but cannot commit herself to do so. One theoretical foundation for this notion builds on the distinction between formal and real authority introduced by Aghion and Tirole, in which the actual exercise of authority may require noncontractible information, absent which formal control rights are vacuous. We use this notion to study the extent to which control transfers may allow an agent to reveal information regarding his ability or willingness to cooperate with the principal in the future. We show that the distinction between contractible and transferable control can drastically influence how learning takes place: with contractible control, information about the agent can often be acquired through revelation mechanisms that involve communication and message-contingent control allocations; in contrast, when control is transferable but not contractible, it can be optimal to transfer control unconditionally and learn instead from the way in which the agent exercises control.Economic

Thermo-mechanical FE model with memory effect for 304L austenitic stainless steel presenting microstructure gradient

The main purpose of this study is to determine, via a three dimensions Finite Element analysis (FE), the stress and strain fields at the inner surface of a tubular specimen submitted to thermo-mechanical fatigue. To investigate the surface finish effect on fatigue behaviour at this inner surface, mechanical tests were carried out on real size tubular specimens under various thermal loadings. X ray measurements, Transmission Electron Microscopy observations and micro-hardness tests performed at and under the inner surface of the specimen before testing, revealed residual internal stresses and a large dislocation microstructure gradient in correlation with hardening gradients due to machining. A memory effect, bound to the pre-hardening gradient, was introduced into an elasto-visco-plastic model in order to determine the stress and strain fields at the inner surface. The temperature evolution on the inner surface of the tubular specimen was first computed via a thermo-elastic model and then used for our thermo-mechanical simulations. Identification of the thermo-mechanical model parameters was based on the experimental stabilized cyclic tension-compression tests performed at 20^{\circ}C and 300^{\circ}C. A good agreement was obtained between numerical stabilized traction-compression cycle curves (with and without pre-straining) and experimental ones. This 3 dimensional simulation gave access to the evolution of the axial and tangential internal stresses and local strains during the tests. Numerical results showed: a decreasing of the tangential stress and stabilization after 40 cycles, whereas the axial stress showed weaker decreasing with the number of cycles. The results also pointed out a ratcheting and a slightly non proportional loading at the inner surface. The computed mean stress and strain values of the stabilized cycle being far from the initial ones, they could be used to get the safety margins of standard design related to fatigue, as well as to get accurate loading conditions needed for the use of more advanced fatigue analysis and criteria