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This paper analyzes the current phase of backlash of economic globalization using a target zone approach in an environment populated by heterogeneous agents The target zone analysis suggests that there may be a positive expectation effect (a ?honeymoon?) when the social costs are credibly expected to remain below the benefits arising from globalization In such a situation, the latter proceeds even beyond the level that society would be willing to accept in the absence of a such a target When the costs are expected to exceed the benefits, instead, the opposite phenomenon (a ?divorce?) arises While in the case of exchange rates or interest rates, the passage from ?honeymoon? to ?divorce? might well occur with a discrete jump of the respective variable, rather than gradually, this is not the case when considering economic and social costs Graduality is obtained thanks to the introduction of the hypothesis of heterogeneous agents The proportion of those who think that the costs of globalization exceed the benefits increases with globalization and the ?honeymoon??, then, gradually turns into a ?divorce? Government's redistributive intervention to compensate the losers, however, could reduce the costs of globalization, thereby delaying or even preventing its crisis

This paper adopts a target zone approach to analyse and interpret the current phase of slowdown, if not retreat, of economic globalisation. A ‘honeymoon’ emerges when a credible limit is imposed on its economic and social costs. Conversely, if the upper cost threshold is not set credibly, a ‘divorce’ from economic globalisation emerges earlier than if no target is taken into account. Such a second case represents the recent events.

Financial crises are often associated with an endogenous credit reversal followed by a fall in asset prices and serious disruptions in the financial sector. To account for this sequence of events, this paper constructs a model where the excessive risk-taking of portfolio investors leads to a bubble in asset prices (in the spirit of Allen and Gale, "Bubbles and Crises", Economic Journal, 2000), and where the supply of credit to these investors is endogenous. We show that the interplay between the risk shifting problem and the endogeneity of credit may give rise multiple equilibria associated with different levels of lending, asset prices, and output. Stochastic equilibria lead, with positive probability, to an inefficient liquidity dry-up at the intermediate date, a market crash, and widespread failures of borrowers. The possibility of multiple equilibria and self-fulfilling crises is showed to be related to the severity of the risk shifting problem in the economy.

This paper analyses the dynamic implications of an asset-pricing model with incomplete participation due to entry costs. It is shown that heterogeneity in entry costs can lead to the existence of multiple stochastic sunspot equilibria, whereby the number of agents in the market and asset prices fluctuate endogeneously over time in the absence of fundamental uncertainty. Such asset-price fluctuations occur despite the uniqueness of the deterministic equilibrium, and thus bear no link to the usual notion of steady-state indeterminacy. In addition to excess volatility, the equilibria exhibit predictable and conditionally heteroskedastic returns.