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Data de publicació electrònica: 16-09-21 ; Since the creation of the euro, capital flows among member countries have been large and volatile. Motivated by this fact, I provide a theory connecting the exchange rate regime to financial integration. The key feature of the model is that monetary policy affects the value of collateral that creditors seize upon default. Under flexible exchange rates, national governments can expropriate foreign creditors by depreciating the exchange rate, which induces investors to impose tight constraints on international borrowing. Creating a monetary union, by eliminating this source of currency risk, increases financial integration among member countries. This process, however, does not necessarily lead to higher welfare. The reason is that a high degree of capital mobility can generate multiple equilibria, with bad equilibria characterized by inefficient capital flights. Capital controls or fiscal transfers can eliminate bad equilibria, but their implementation requires international cooperation. ; Financial support from the European Research Council under the European Union's Horizon 2020 research and innovation program, Starting Grant (851896-KEYNESGROWTH) and the Spanish Ministry of Economy and Competitiveness, through the Severo Ochoa Programme for Centres of Excellence in R&D (SEV2015-0563 and CEX2019-000915-S), and from the Generalitat de Catalunya, through CERCA and SGR Programme (2017-SGR-1393), is gratefully acknowledged.

Since the creation of the euro, capital flows among member countries have been large and volatile. Motivated by this fact, I provide a theory connecting the exchange rate regime to financial integration. The key feature of the model is that monetary policy affects the value of collateral that creditors seize upon default. Under flexible exchange rates, national governments can expropriate foreign creditors by depreciating the exchange rate, which induces investors to impose tight constraints on international borrowing. Creating a monetary union, by eliminating this source of currency risk, increases financial integration among member countries. This process, however, does not necessarily lead to higher welfare. The reason is that a high degree of capital mobility can generate multiple equilibria, with bad equilibria characterized by inefficient capital flights. Capital controls or fiscal transfers can eliminate bad equilibria, but their implementation requires international cooperation.

Since the creation of the euro, capital ows among member countries have been large and volatile. Motivated by this fact, I provide a theory connecting the exchange rate regime to nancial integration. The key feature of the model is that monetary policy aects the value of collateral that creditors seize in case of default. Under exible exchange rates, national governments can expropriate foreign investors by depreciating the exchange rate. Anticipating this, investors impose tight limits on international borrowing. In a monetary union this source of exchange rate risk is absent, because national governments do not control monetary policy. Forming a monetary union thus increases nancial integration by boosting borrowing capacity toward foreign investors. This process, however, does not necessarily lead to higher welfare. The reason is that a high degree of nancial integration can generate multiple equilibria, with bad equilibria characterized by inecient capital ights. Capital controls or scal transfers can eliminate bad equilibria, but their implementation requires international cooperation.

This paper describes a paradox of global thrift. Consider a world in which interest rates are low and monetary policy is constrained by the zero lower bound. Now imagine that governments implement prudential financial and fiscal policies to stabilize the economy. We show that these policies, while effective from the perspective of individual countries, might backfire if applied on a global scale. In fact, prudential policies generate a rise in the global supply of savings and a drop in global aggregate demand. Weaker global aggregate demand depresses output in countries at the zero lower bound. Due to this effect, noncooperative financial and fiscal policies might lead to a fall in global output and welfare. (JEL E21, E23, E43, E44, E52, E62, F32)

Este artículo describe una "paradox of global thrift". Se considera un mundo en el que las tasas de interés son bajas y la política monetaria está limitada por el límite inferior cero. Se imagina que los Gobiernos implementan políticas financieras y fiscales prudenciales para estabilizar la economía. Mostramos que estas políticas, si bien son efectivas desde la perspectiva de los países individuales, podrían ser contraproducentes si se aplican a escala global. De hecho, las políticas prudenciales generan un aumento en la oferta global de ahorros y una caída en la demanda agregada global. Una demanda agregada global más débil deprime la producción en los países que se sitúan en el límite inferior cero. Debido a este efecto, las políticas financieras y fiscales no cooperativas podrían llevar a una caída en la producción y el bienestar global ; This paper describes a paradox of global thrift. Consider a world in which interest rates are low and monetary policy is constrained by the zero lower bound. Now imagine that governments implement prudential financial and fiscal policies to stabilize the economy. We show that these policies, while effective from the perspective of individual countries, might backfire if applied on a global scale. In fact, prudential policies generate a rise in the global supply of savings and a drop in global aggregate demand. Weaker global aggregate demand depresses output in countries at the zero lower bound. Due to this effect, noncooperative financial and fiscal policies might lead to a fall in global output and welfare