TY  - JOUR
AU  - Dooley,Michael P.
AU  - Garber,Peter M.
AU  - Folkerts-Landau,David
TI  - The Two Crises of International Economics
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13197
PY  - 2007
Y2  - June 2007
UR  - http://www.nber.org/papers/w13197
L1  - http://www.nber.org/papers/w13197.pdf
N1  - Author contact info:
Michael P. Dooley
Department of Economics
Engineering II
University of California, Santa Cruz
Santa Cruz, CA 95064
Tel: 831/459 3662
Fax: 831/459-5077
E-Mail: MPD@UCSC.EDU

Peter M. Garber
Deutsche Bank
60 Wall Street
New York, NY 10005
Tel: 212/250-5466
Fax: 212/250-2628
E-Mail: peter.garber@db.com

David Folkerts-Landau
Deutsche Bank
Deutsche Bank AG London
1 Great Winchester Street
London EC2 2EQ
United Kingdom
E-Mail: david.folkerts-landau@db.com
AB  - In this essay, we argue that key assumptions in international macroeconomic theory, though useful for understanding the economic relationships among developed countries, have been pushed beyond their competence to include relationships between developed economies and emerging markets.  The Achilles heel of this extended development model is the assumption that threats to deprive the debtor countries of gains from trade provide incentives for poor countries to repay more than trivial amounts of international debt.  Replacing this assumption with the idea that collateral is required to support gross international capital flows suggests that the pattern of current account balances seen in recent years is a sustainable equilibrium.
ER  -