Gurbachan Singh (ISI Delhi)

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Centre for Development Economics
and
Department of Economics, Delhi School of Economics

ANNOUNCE A SEMINAR

Systemic Flight to Quality from Emerging Economies,
and Enabled International Credit Lines

by

Gurbachan Singh
ISI Delhi

Thursday, February 16, 2012 at 3 p.m.

Venue : AMEX Conference Room (Second Floor)
Department of Economics, Delhi School of Economics

All are cordially invited

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.