NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Ceyhun Bora Durdu

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NBER Working Papers and Publications

September 2012On the Solvency of Nations: Cross-Country Evidence on the Dynamics of External Adjustment
with Enrique G. Mendoza, Marco E. Terrones: w18380
We test the hypothesis that net foreign asset positions are consistent with external solvency and examine the dynamics of external adjustment using data for 50 countries over the 1970-2006 period. Our analysis adapts Bohn's (2007) error-correction reaction function approach--which tests for a negative long-run relationship between net exports (NX) and net foreign assets (NFA) as a sufficiency condition for the intertemporal budget constraint to hold--to a dynamic panel framework. Pooled Mean Group and Mean Group error-correction estimation yield evidence of a statistically significant, negative response of NX to NFA. Moreover, we cannot reject the hypothesis that the response is largely homogeneous across countries. Our sensitivity analysis shows that the countries with relatively weaker f...

Published: Durdu, C. Bora & Mendoza, Enrique G. & Terrones, Marco E., 2013. "On the solvency of nations: Cross-country evidence on the dynamics of external adjustment," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 762-780. citation courtesy of

May 2007Precautionary Demand for Foreign Assets in Sudden Stop Economies: An Assessment of the New Merchantilism
with Enrique G. Mendoza, Marco E. Terrones: w13123
Financial globalization was off to a rocky start in emerging economies hit by Sudden Stops since the mid 1990s. Foreign reserves grew very rapidly during this period, and hence it is often argued that we live in the era of a New Merchantilism in which large stocks of reserves are a war-chest for defense against Sudden Stops. We conduct a quantitative assessment of this argument using a stochastic intertemporal equilibrium framework with incomplete asset markets in which precautionary saving affects foreign assets via three mechanisms: business cycle volatility, financial globalization, and Sudden Stop risk. In this framework, Sudden Stops are an equilibrium outcome produced by an endogenous credit constraint that triggers Irving Fisher's debt-deflation mechanism. Our results show that fina...

Published: Durdu, Ceyhun Bora & Mendoza, Enrique G. & Terrones, Marco E., 2009. "Precautionary demand for foreign assets in Sudden Stop economies: An assessment of the New Mercantilism," Journal of Development Economics, Elsevier, vol. 89(2), pages 194-209, July. citation courtesy of

March 2005Are Asset Price Guarantees Useful for Preventing Sudden Stops?: A Quantitative Investigation of the Globalization Hazard-Moral Hazard Tradeoff
with Enrique G. Mendoza: w11178
The globalization hazard hypothesis maintains that the current account reversals and asset price collapses observed during 'Sudden Stops' are caused by global capital market frictions. A policy implication of this view is that Sudden Stops can be prevented by offering global investors price guarantees on emerging markets assets. These guarantees, however, introduce a moral hazard incentive for global investors, thus creating a tradeoff by which price guarantees weaken globalization hazard but strengthen international moral hazard. This paper studies the quantitative implications of this tradeoff using a dynamic stochastic equilibrium asset-pricing model. Without guarantees, distortions induced by margin calls and trading costs cause Sudden Stops driven by Fisher's debt-deflation mechanism....

Published: Durdu, Ceyhun and Enrique G. Mendoza. "Are Asset Price Guarantees Useful For Preventing Sudden Stops?: A Quantitative Investigation Of The Globalization Hazard-Moral Hazard Tradeoff," Journal of International Economics, 2006, v69(1,Jun), 84-119. citation courtesy of

September 2004Putting the Brakes on Sudden Stops: The Financial Frictions-Moral Hazard Tradeoff of Asset Price Guarantees
with Enrique G. Mendoza: w10790
The hypothesis that Sudden Stops to capital inflows in emerging economies may be caused by global capital market frictions, such as collateral constraints and trading costs, suggests that Sudden Stops could be prevented by offering price guarantees on the emerging-markets asset class. Providing these guarantees is a risky endeavor, however, because they introduce a moral-hazard-like incentive similar to those that are also viewed as a cause of emerging markets crises. This paper studies this financial frictions-moral hazard tradeoff using an equilibrium asset-pricing model in which margin constraints, trading costs, and ex-ante price guarantees interact in the determination of asset prices and macroeconomic dynamics. In the absence of guarantees, margin calls and trading costs create disto...

Published: Enrique G. Mendoza & Ceyhun Bora Durdu, 2004. "Putting the brakes on Sudden Stops: the financial frictions - moral hazard tradeoff of asset price guarantees," Proceedings, Federal Reserve Bank of San Francisco, issue Jun. citation courtesy of

 
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