Brunnermeier, Markus K.; Sannikov, Yuliy - In: American Economic Journal: Macroeconomics 7 (2015) 1, pp. 297-338
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 due to pecuniary externalities. First, an undercapitalized country borrows too...