TY  - GEN
AB  - I develop a heterogeneous-country model of the world economy to study the distributional impact of aggregate capital flight episodes. A global intermediary borrows from all countries and invests in their risky assets. Wealth heterogeneity between countries arises endogenously due to idiosyncratic shocks. A single global factor that combines the intermediary's wealth and risk-taking capacity determines capital inflows and risk premia in every country. A shock to the intermediary’s risk-taking capacity generates global capital flight. Investors from rich countries use their external savings to replace foreign demand for domestic assets. These countries experience a ``retrenchment'' event: a sizable fall in outward flows. Their risky assets appreciate on impact. In poor countries, investors cannot replace foreign demand without a sharp rise in risk premia. Their asset markets adjust through prices rather than quantities, and prices fall. Estimating the model, I find that global financial shocks explain a quarter of the time-series variation in aggregate capital flows and a third of the variation in the relative performance of assets in advanced economies compared to emerging markets.
AD  - University of Chicago
AU  - Oskolkov, Aleksei
DA  - 2024-06
DO  - 10.6082/uchicago.12345
DO  - doi
ED  - Fernando Alvarez
ED  - Mikhail Golosov
ED  - Lars P. Hansen
ED  - Guido Lorenzoni
ID  - 12345
KW  - Economics
KW  - capital flows
KW  - global financial cycle
KW  - safe assets
L1  - https://knowledge.uchicago.edu/record/12345/files/Oskolkov_uchicago_0330D_17373.pdf
L2  - https://knowledge.uchicago.edu/record/12345/files/Oskolkov_uchicago_0330D_17373.pdf
L4  - https://knowledge.uchicago.edu/record/12345/files/Oskolkov_uchicago_0330D_17373.pdf
LA  - eng
LK  - https://knowledge.uchicago.edu/record/12345/files/Oskolkov_uchicago_0330D_17373.pdf
N2  - I develop a heterogeneous-country model of the world economy to study the distributional impact of aggregate capital flight episodes. A global intermediary borrows from all countries and invests in their risky assets. Wealth heterogeneity between countries arises endogenously due to idiosyncratic shocks. A single global factor that combines the intermediary's wealth and risk-taking capacity determines capital inflows and risk premia in every country. A shock to the intermediary’s risk-taking capacity generates global capital flight. Investors from rich countries use their external savings to replace foreign demand for domestic assets. These countries experience a ``retrenchment'' event: a sizable fall in outward flows. Their risky assets appreciate on impact. In poor countries, investors cannot replace foreign demand without a sharp rise in risk premia. Their asset markets adjust through prices rather than quantities, and prices fall. Estimating the model, I find that global financial shocks explain a quarter of the time-series variation in aggregate capital flows and a third of the variation in the relative performance of assets in advanced economies compared to emerging markets.
PB  - University of Chicago
PY  - 2024-06
T1  - Heterogeneous Impact of the Global Financial Cycle
TI  - Heterogeneous Impact of the Global Financial Cycle
UR  - https://knowledge.uchicago.edu/record/12345/files/Oskolkov_uchicago_0330D_17373.pdf
Y1  - 2024-06
ER  -