16 February 2012: Systemic Flight to Quality from Emerging Economies, and Enabled International Credit Lines

Gurbachan Singh
Indian Statistical Institute

Abstract:
This paper builds a simple but new model to highlight a puzzle.
Commercial banks routinely extend credit lines to rms, which need to
be effectively backed by some reserves. In contrast, international
credit lines for emerging economies to take care of flight to quality
hardly need to be backed by reserves. This is because the so-called
systemic outflow from emerging economies is accompanied by inflow into
developed economies. So funding liquidity need not be a problem even
if reserves are small. This suggests that ceteris paribus the market
for credit lines to take care of flight to quality ought to exist more
easily than the market for usual credit lines for business
investments. It is actually the opposite. Why? One explanation can lie
in the dual agency perspective (Tirole, 2002). Central banks and the
IMF can then act as mediators and provide enabling conditions. We also
discuss possible extensions of the model to analyse some related
issues.

Date: February 16, 2012
Time: 03:00 P.M.

Venue:
AMEX Conference Room (Second Floor)
Department of Economics,
Delhi School of Economics,
New Delhi-110007(INDIA)

Location:

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