Working Paper: NBER ID: w9737
Authors: Aaron Tornell; Frank Westermann
Abstract: In this paper we document three credit market imperfections prevalent in middle income countries that can help explain the boom-bust cycles as well as other macroeconomic patterns observed at higher frequencies across these countries. These imperfections are: the existence of financing constraints that affect mainly the nontradables sector, currency mismatch and systemic bailout guarantees.
Keywords: No keywords provided
JEL Codes: E32; F32; G15; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| borrowing constraints (F34) | asymmetric financing opportunities (G32) |
| currency mismatch (F31) | insolvency risk for banks (G33) |
| systemic guarantees (H81) | risk-taking among borrowers (G51) |
| borrowing constraints (F34) | financial constraints for n-sector firms (G32) |
| currency mismatch (F31) | amplification of economic shocks (F69) |
| systemic guarantees (H81) | higher levels of debt in foreign currency (F65) |