Gravity in International Finance ☆

  title={Gravity in International Finance ☆},
  author={Yohei Okawa and Eric van Wincoop},
a r t i c l e i n f o The past decade has witnessed an explosion of papers estimating gravity equations for cross-border financial holdings without much of a theoretical foundation. In this paper we develop a theory for bilateral asset holdings that takes a gravity form. We discuss how to estimate international financial frictions and conduct comparative statics analysis within the context of the theory. We also find though that reasonable extensions of the model no longer generate a gravity… CONTINUE READING