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| Author: | Krebs, T. |
| Title: | Fundamentals, information, and international capital flows: A welfare analysis |
| Journal: | European Economic Review
2005 : APR, VOL. 49:3, p. 579-598 |
| Index terms: | Capital markets International Information Models |
| Language: | eng |
| Abstract: | This paper uses a simple 2-country (two-agent) general equilibrium model with incomplete markets and production to explore the welfare (hereafter as: w-f.) consequences of an increase in public information (here as: info) about country-specific fundamentals (increase in transparency). An improvement in the quality of info has two effects on the ex-ante w-f. of individual countries: A direct effect that increases the efficiency of global capital allocation and w-f., and an indirect general equilibrium effect that increases asset price volatility and may decrease w-f. When the degree of risk-aversion is low, at least one country will gain from an increase in info quality. If the degree of risk-aversion is high, then there are robust examples of economies for which an increase in info hurts all countries. |
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