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We propose a small open economy model where agents borrow internationally and invest in liquid foreign assets to insure against liquidity shocks, which temporarily shut out the economy of short-term credit markets. Due to the presence of a pecuniary externality individual agents borrow too much...
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question whether the world has become smaller in terms of economic distance. Instead of focussing on the transmission of single … results for the most recent period suggest that a uniform shock to output volatility in the world economy roughly …
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