TY  - JOUR
AU  - Chari,V. V.
AU  - Kehoe,Patrick
TI  - Hot Money
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6007
PY  - 1997
Y2  - April 1997
UR  - http://www.nber.org/papers/w6007
L1  - http://www.nber.org/papers/w6007.pdf
N1  - Author contact info:
Varadarajan V. Chari
Department of Economics
University of Minnesota
1035 Heller Hall
271 - 19th Avenue South
Minneapolis, MN 55455
Tel: 612/626-5171
Fax: (612) 624-0209
E-Mail: varadarajanvchari@gmail.com

Patrick Kehoe
Research Department
Federal Reserve Bank of Minneapolis
90 Hennepin Avenue
Minneapolis, MN  55480-0291
Tel: 612/204-5525
Fax: 612/204-5515
E-Mail: pkehoe@res.mpls.frb.fed.us
AB  - The conventional wisdom is that capital flows between developing countries and developed countries are more volatile than can be justified by fundamentals.  In this paper we construct a simple model in which frictions in international financial markets in combination with standard debt-default problems lead to volatile capital flows.  These flows act as tests of fire for borrowing countries.  If a country survives this test, its reputation is enhanced and future capital flows become less volatile.  Failing this test is associated with a loss of reputation and a decline in the amount of capital flows.
ER  -