A copy of this work was available on the public web and has been preserved in the Wayback Machine. The capture dates from 2015; you can also visit the original URL.
The file type is
This paper develops a dynamic two-country neoclassical stochastic growth model with incomplete markets. Short-term credit flows can be excessive and reverse suddenly. The equilibrium outcome is constrained inefficient. First, an undercapitalized country borrows too much since each individual firm does not internalize that an increase in production capacity undermines their output price and thereby worsens their terms of trade. From an ex-ante perspective each firm undermines the natural "termsdoi:10.3386/w20803 fatcat:up4k6og6p5hinlhozzffa3kdd4