| Author/Presenter |
Christiane Clemens (University of Hamburg) |
| Co-author |
Maik Heinemann (University of Lueneburg) |
| Title |
Credit Market Imperfections and International Financial Integration in a Heterogeneous Agent Model |
| Abstract |
This paper deals with financial constraints and idiosyncratic risks in a two-sector heterogeneous agent dynamic general equilibrium model of occupational choice. We discuss the macroeconomic and distributional effects of financial market integration for small economies which differ only with respect to the tightness of constraints on the domestic credit market. We find that international capital flows only indirectly mitigate negative output and welfare effects from borrowing constraints on domestic credit markets. The effects are triggered by adjustments in the real interest rate. Capital exporting countries are characterized by tighter domestic constraints. These countries will benefit from a positive wealth effect of international financial integration. The associated increase in accumulation leads to a rise in the entrepreneurship rate and ultimately raises output and welfare, although average firm sizes and profits decline. Wealth inequality is reduced. The macroeconomic effects can be adverse for the capital-importing country which may suffer from a decrease in GNP in the internationally integrated economy. The model is calibrated to match standard macro data, entrepreneurship rates, and Gini coefficients from OECD countries. |
| Web Link |
http://kaldor.vwl.uni-hannover.de/~chris/divers/clemensheinemann09.pdf |