Credit Market Imperfections in Middle Income Countries
AbstractIn this paper we document three credit market imperfections prevalent in middle income countries that can help to explain 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 guarantees that cover lenders against systemic crises. In MICs T-sector firms have access to international capital markets, while most N-firms are bank-dependent and are financially constrained. Systemic guarantees generate incentives for borrowers to take on insolvency risk by denominating debt in foreign currency. This currency mismatch makes movements in the real exchange rate – the relative price between N and T goods – the driving element in the amplification of shocks.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 960.
Date of creation: 2003
Date of revision:
Other versions of this item:
- Aaron Tornell & Frank Westermann, 2003. "Credit Market Imperfections in Middle Income Countries," NBER Working Papers 9737, National Bureau of Economic Research, Inc.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-31 (All new papers)
- NEP-DEV-2004-08-31 (Development)
- NEP-MFD-2004-08-31 (Microfinance)
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