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The Demand For Liquid Assets, Corporate Saving, And International Capital Flows

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  • Philippe Bacchetta
  • Kenza Benhima

Abstract

The recent period of capital outflows from emerging economies has coincided with an increase in their corporate saving. In this paper, we model corporate saving as a demand for liquid assets by credit-constrained firms in a dynamic open-economy macroeconomic model. We find that the implications of this model are very different from standard models, because the demand for foreign bonds is a complement to domestic investment rather than a substitute. We show that this complementarity is at work when an emerging economy is on its convergence path or when it has a higher TFP growth rate. This framework is consistent with a number of stylized facts found in high-growth, high-investment emerging economies.

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  • Philippe Bacchetta & Kenza Benhima, 2015. "The Demand For Liquid Assets, Corporate Saving, And International Capital Flows," Journal of the European Economic Association, European Economic Association, vol. 13(6), pages 1101-1135, December.
    • Handle: RePEc:bla:jeurec:v:13:y:2015:i:6:p:1101-1135
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    File URL: http://hdl.handle.net/10.1111/jeea.12132
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