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Financial Distortions and the Distribution of Global Volatility

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dc.contributor.authorEden, Maya
dc.date.accessioned2012-03-19T17:28:24Z
dc.date.available2012-03-19T17:28:24Z
dc.date.issued2012-01-01
dc.description.abstractWhy are emerging economies excessively vulnerable to shocks to external funding? What was the role of financial flows from emerging to developed economies in setting the stage for the subprime crisis? This paper addresses these questions in a simple general equilibrium framework that emphasizes the aggregate implications of the misallocation of funds on the micro level. The analysis shows that the misallocation of funds amplifies volatility even in a closed economy. Financial integration between relatively distorted emerging economies and relatively undistorted developed economies leads to a further divergence in volatility, thereby providing a new and simple explanation for the divergent trends in output volatility up to the recent crisis. In the integrated environment, cheap funding leads to an endogenous deterioration of the financial system in developed economies. These predictions are consistent with a wide variety of microfoundations, in which distortions cause productive projects to be relatively more sensitive to aggregate shocks. The paper provides some empirical evidence for these microfoundations.en
dc.identifierhttp://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20120103114938
dc.identifier.doi10.1596/1813-9450-5929
dc.identifier.urihttps://hdl.handle.net/10986/3215
dc.languageEnglish
dc.relation.ispartofseriesPolicy Research working paper ; no. WPS 5929
dc.rightsCC BY 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo/
dc.subjectADVANCED ECONOMIES
dc.subjectADVERSE EFFECT
dc.subjectAGGREGATE SUPPLY
dc.subjectASSET MARKETS
dc.subjectAUCTION
dc.subjectAUCTIONS
dc.subjectAVERAGE PRODUCTIVITY
dc.subjectBACKED SECURITIES
dc.subjectBAILOUT
dc.subjectBALANCE SHEET
dc.subjectBALANCE SHEET EFFECTS
dc.subjectBALANCE SHEETS
dc.subjectBANK CREDIT
dc.subjectBANK POLICY
dc.subjectBANKING SYSTEM
dc.subjectBANKS
dc.subjectBENCHMARK
dc.subjectBUSINESS CYCLE
dc.subjectBUSINESS CYCLES
dc.subjectCLOSED ECONOMY
dc.subjectCOLLATERAL
dc.subjectCOMPARATIVE ADVANTAGE
dc.subjectCOMPETITIVE BIDDING
dc.subjectCONSTANT RETURNS TO SCALE
dc.subjectCOUNTRY DUMMIES
dc.subjectCREDIT POLICY
dc.subjectDERIVATIVE
dc.subjectDEVELOPING ECONOMIES
dc.subjectDEVELOPMENT POLICY
dc.subjectDIRECT ACCESS
dc.subjectDISTRIBUTION OF INCOME
dc.subjectDOMESTIC LIQUIDITY
dc.subjectDUMMY VARIABLE
dc.subjectDUMMY VARIABLES
dc.subjectECONOMIC OUTLOOK
dc.subjectEMERGING ECONOMIES
dc.subjectEMERGING ECONOMY
dc.subjectEMERGING MARKET
dc.subjectEMERGING MARKET ASSETS
dc.subjectEMERGING MARKET ECONOMIES
dc.subjectEMERGING MARKETS
dc.subjectEMPLOYMENT
dc.subjectEQUILIBRIUM
dc.subjectEQUITY MARKET
dc.subjectEXTERNAL FUNDING
dc.subjectFEDERAL RESERVE
dc.subjectFINANCIAL CRISES
dc.subjectFINANCIAL DEVELOPMENT
dc.subjectFINANCIAL FLOWS
dc.subjectFINANCIAL FRAGILITY
dc.subjectFINANCIAL INSTITUTIONS
dc.subjectFINANCIAL INTEGRATION
dc.subjectFINANCIAL LIBERALIZATION
dc.subjectFINANCIAL OPENNESS
dc.subjectFINANCIAL SECTOR
dc.subjectFINANCIAL SUPPORT
dc.subjectFINANCIAL SYSTEM
dc.subjectFLOW OF FUNDS
dc.subjectFUTURE RESEARCH
dc.subjectGDP
dc.subjectGDP DEFLATOR
dc.subjectGDP PER CAPITA
dc.subjectGLOBAL DIVERSIFICATION
dc.subjectGLOBALIZATION
dc.subjectGOVERNMENT FUNDING
dc.subjectGOVERNMENT INTERVENTION
dc.subjectGROWTH RATES
dc.subjectHOLDING
dc.subjectHOUSING
dc.subjectHOUSING PRICES
dc.subjectIMPORTANCE OF LIQUIDITY
dc.subjectINEFFICIENCY
dc.subjectINTEREST RATE
dc.subjectINTEREST RATE SHOCKS
dc.subjectINTEREST RATES
dc.subjectINTERNATIONAL BANK
dc.subjectINTERNATIONAL ECONOMICS
dc.subjectINTERNATIONAL TRADE
dc.subjectINVENTORY
dc.subjectLIBERALIZATION
dc.subjectLOCAL BANK
dc.subjectLOCAL BANKS
dc.subjectLOW INTEREST RATE
dc.subjectLOW INTEREST RATES
dc.subjectMACROECONOMIC VOLATILITY
dc.subjectMACROECONOMICS
dc.subjectMARGINAL PRODUCT
dc.subjectMARGINAL PRODUCTIVITY
dc.subjectMARGINAL PRODUCTS
dc.subjectMARKET FLUCTUATIONS
dc.subjectMARKET LIBERALIZATION
dc.subjectMARKET PRICE
dc.subjectMARKET RETURN
dc.subjectMARKET VOLATILITY
dc.subjectMONEY SUPPLY
dc.subjectMORTGAGE
dc.subjectMORTGAGE MARKET
dc.subjectNEGATIVE SHOCKS
dc.subjectOLIGOPOLY
dc.subjectOPEN ECONOMIES
dc.subjectOPEN ECONOMY
dc.subjectOUTPUT
dc.subjectPOLITICAL ECONOMY
dc.subjectPRODUCTION FUNCTION
dc.subjectPRODUCTIVITY
dc.subjectRATE OF RETURN
dc.subjectREPAYMENT
dc.subjectRETURNS
dc.subjectRISK AVERSION
dc.subjectRISK SHARING
dc.subjectSALES
dc.subjectSAVINGS
dc.subjectSAVINGS BANK
dc.subjectSCALE EFFECT
dc.subjectSHARE OF INVESTMENT
dc.subjectSUBSTITUTES
dc.subjectSUBSTITUTION
dc.subjectSUPPLY SHOCKS
dc.subjectTOTAL SALES
dc.subjectVOLATILITY
dc.subjectWORKING CAPITAL
dc.subjectWORLD ECONOMY
dc.titleFinancial Distortions and the Distribution of Global Volatilityen
dspace.entity.typePublication
okr.crossref.titleFinancial Distortions and the Distribution of Global Volatility
okr.date.doiregistration2025-04-10T11:04:53.750911Z
okr.doctypePublications & Research::Policy Research Working Paper
okr.docurlhttp://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20120103114938
okr.guid808481468338981160
okr.identifier.doi10.1596/1813-9450-5929
okr.identifier.externaldocumentum000158349_20120103114938
okr.identifier.internaldocumentum15593059
okr.identifier.reportWPS5929
okr.language.supporteden
okr.pdfurlhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2012/01/03/000158349_20120103114938/Rendered/PDF/WPS5929.pdfen
okr.region.administrativeThe World Region
okr.region.administrativeThe World Region
okr.unitDevelopment Research Group (DECRG)
okr.volume1 of 1
relation.isAuthorOfPublication443bbe9e-2343-561b-b27e-2d13a7c3d318
relation.isAuthorOfPublication.latestForDiscovery443bbe9e-2343-561b-b27e-2d13a7c3d318
relation.isSeriesOfPublication26e071dc-b0bf-409c-b982-df2970295c87
relation.isSeriesOfPublication.latestForDiscovery26e071dc-b0bf-409c-b982-df2970295c87
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