In recent years there has been a steady increase in the maximum static pressures attainable, from -35 GPa in the 1970’s up to a maximum reported pressure of 550 GPa in 1986.1m3 These incredible records have been achieved
through refinements of diamond-anvil-cell (DAC) technology.z3 All DACs generate pressures by compressing samples between the faces of two diamond anvils. Generally, a gasket formed out of a hard metal is used to contain the
samples on the diamond tip (culet), the region of maximum pressure. A typical gasket is produced by first preindenting a sheet of rhenium to a thickness of 20-50 pm.4 A small hoIe is then drilled that is centered on the culet imprint in the deformed sheet. A general trend leading to higher pressures has been the use of smaller culet faces in the diamond anvils. For instance, diamonds with culet flats of 50 pm are routinely used in multimegabar experiments, requiring gasket hole diameters as small as 25 pm.5 Complicating the gasket making process are sample stability considerations, specially crucial for soft systems such as HZ.’ Unstable samples will migrate under load from the center to the edge of the culet, limiting the highest pressures of the experiment and often causing premature failure of the anvils. One key factor to enhancing stability of soft samples is the precise centering of the hole relative to the culet face. We note that making a small (-25 pm) hole within 3 pm of the culet center is extremely difficult and can require several attempts even under ideal circumstances.
Commonly used techniques for drilling small holes have significant drawbacks. The most common method suited for large holes (greater than -100 pm) is mechanical drilling, but this process becomes increasingly difficult to implement with decreasing hole diameter. A zoom microscope (80X magnification), drill press, and small-diameter tungsten carbide bits are the required equipment. The microscope and the drill press currently cost about $3200 (U.S.). A reasonable supply of bits can also be very costly; for example, 25-w-diam tungsten carbide bits cost -$llO each.7 Because of their fragility, one may expect to break about 4 bits in machining one small diameter (25 m) hole. Thin shafts also flex markedly during drilling, severely complicating the centering procedure.
It is well documented that since the mid-1980s there has been a surge in capital flows due to the increased integration of world financial markets. Such episodes naturally lead to question the macroeconomic and welfare implications of increased financial liberalization. Most of the theoretical literature so far has shown that increasing international financial linkages should help to improve consumption smoothing possibilities in face of country$specific shocks. This is the starting assumption motivating the works by Backus and Smith [5], Mendoza [40], Baxter and Crucini [7] who study the business cycle implications of restricting international asset trading. This paper builds a small open economy model with collateral constraints on foreign lending to show that financial globalization coupled with limited enforcement in financial markets can increase consumption volatility and reduce welfare.
The model used in this paper is a small open economy model where risk averse agents consume durable and nondurable goods, supply labour services and finance consumption with foreign lending. The latter is constrained by a borrowing limit in which foreign lending is secured by collateral in the form of durable stock. The small open economy produces and trades nondurable consumption goods with the rest of the world as there is imperfect substitution between home and foreign consumption. Accumulable durables play the role of collateral and can be seized by foreign lenders in the event of default. The reason for introducing durable goods is twofold. First, they account for a large portion of measured consumption and for this reason the current account becomes more variable as agents tend to lump their purchases of durables. Second, given the size of the transactions agents borrow mostly to finance the purchase of durable rather than that of non durable goods. In this paper we assume that durables play the role of collateralizable wealth but they also provide utility services (see Davis and Heatcote [27], Miles [43] and Iacoviello [28]). The latter assumption allows to account both, for the welfare effects of fluctuations in durable goods and for the business cycle implications of imperfect substitutability between durable and non$durable goods. Finally, I assume that agents face adjustment costs on durable consumption, an assumption that allows to reproduce persistence in the pattern of durable and in response to various shocks (see Topel and Rosen [53], Erceg and Levin [23]). The borrowing limit allows to model the assumption of imperfect financial linkages, while the degree of financial liberalization is captured by the parameter characterizing the sensitivity of foreign lending to the value of collateral as a higher value of this parameter relaxes the constraint on foreign lending. In modelling the type of borrowing constraint I follow Kiyotaki and Moore [30], Kocherlakota [33], Chari, Kehoe and McGrattan [17] among others. In this model net asset accumulation is determined by the borrowing constraint and depends on the value of collateral: domestic impatient agents borrow from foreign patient agents. The difference in the discount factors between domestic and foreign agents renders the constraint binding at all states and times and allows to pin down uniquely the distribution of assets across countries.
Research on technology and industries has identified two roads to riches. Firms can earn profits by creating or imitating a new product technology, which fills a need as yet unfulfilled. Alternatively, firms can earn profits by developing or imitating a replacement technology, which improves on and replaces technology already commercialized by established firms. How often these two roads to riches are successfully employed depends on relative abilities of entrant and incumbent firms.
