Working Paper: NBER ID: w22377
Authors: Roberto Chang; Andrs Fernández; Adam Gulan
Abstract: Corporate sectors in emerging markets have noticeably increased their reliance on foreign financing, presumably reflecting low global interest rates. The evidence also shows a rebalancing from bank loans towards bonds. To study these developments, we develop a dynamic open economy model where these modes of finance are determined endogenously. The model replicates the stylized facts following a drop in world interest rates; in particular, rebalancing towards bonds occurs because bank credit becomes relatively more expensive, reflecting the scarcity of bank equity. More generally, the model is suitable for studying interactions between modes of finance and the macroeconomy.
Keywords: Bond Finance; Bank Credit; Emerging Markets; Aggregate Fluctuations
JEL Codes: F3; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Drop in world interest rates (E43) | Increase in demand for capital goods (E22) |
| Increase in demand for capital goods (E22) | Increase in relative price of capital goods (E22) |
| Increase in relative price of capital goods (E22) | Increase in both corporate bonds and bank loans (G39) |
| Increase in both corporate bonds and bank loans (G39) | Higher ratio of bonds to loans (G32) |
| Changes in moral hazard parameters or monitoring costs (E71) | Increase in the ratio of bonds to loans (G32) |
| Favorable commodity price shocks (Q02) | Increase in both direct and indirect finance (G29) |