Document Type
Discussion Paper
Publication Date
4-2026
CFDP Number
2521
CFDP Pages
44
Journal of Economic Literature (JEL) Code(s)
D52, D53, E32, E44, F34, F36, G01, G11, G12
Abstract
Cross-country disparities in collateral technologies alone can account for large capital flows among mature economies, and allow the most advanced country to run a permanent trade deficit. When the collateral technology advantage is in creating negative beta (super safe) financial assets backed by positive beta assets, a Global Collateral Cycle emerges, with pro-cyclical gross and net flows and increased global asset price volatility. The supply of super safe assets is necessarily curtailed in downturns, providing a complementary (supply) channel to the flight to safety (demand) channel for explaining why US safe asset prices rise during crises.
Recommended Citation
Fostel, Ana; Geanakoplos, John; and Phelan, Gregory, "Capital Flows and the Global Collateral Cycle" (2026). Cowles Foundation Discussion Papers. 2945.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/2945