Credit Market Frictions In An Open Economy
AbstractThis paper assesses the effects of asymmetric information and agency costs in credit markets in an open economy with a floating exchange rate and sticky prices. A decline in agency costs lowers the cost of external finance and increases the long-run level of steady state investment, capital and output. Agency costs also affect the business cycle and the central bank's response to shocks in the economy. Following a supply (demond) shock to the economy agency costs dampen (magnify) output fluctuations. The results thus underline the importance of incorporating credit markets into macroeconomic models.
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Bibliographic InfoPaper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2006-04.
Length: 45 pages
Date of creation: Jan 2006
Date of revision:
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Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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