Heterogeneous Global Cycles

Finance

Speaker:Peter Kondor, London School of Economics
Date: Thursday 11 October 2018
Time: 13:45
Location: Syndicate Room C, Building One

Further details

Abstract


We study the heterogeneous effect of capital supply fluctuations on real outcomes across countries. We show that frictions in global intermediation lead to a partition of economies to groups with low and high exposure to global shocks because low skilled investors lend to different firms as the aggregate state changes. The diff erential response of investors across countries invites diff erential strategies of firms, shaping heterogeneous global cycles. We connect the implications of our model to stylized facts on credit spreads, investment, safe asset supply, concentration of debt ownership, and the return on debt during various boom-bust episodes, both in the time series and in the cross-section. We demonstrate that a global savings glut implies that some countries are pushed from the low exposure to the high exposure group and exacerbates both booms and busts in the high exposure group