Heterogeneous Global Cycles

We study the heterogeneous effect of capital supply fluctuations on real outcomes across countries. We show that frictions in global intermediation lead to an endogenous partitioning of economies into groups with low and high exposure to global credit cycle, because low skilled investors dramatically re-balance their portfolios as the aggregate state changes. The differential response of investors invites differential strategies of firms, shaping heterogeneous global cycles. We connect the implications of our model to stylized facts on credit spreads, investment, safe asset supply, concentration of debt ownership, and the return on debt during various boom-bust episodes, both in the time series and in the cross-section. We demonstrate that a global savings glut implies that some countries are pushed from the low exposure to the high exposure group and exacerbates both booms and busts in the high exposure group.