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Creditor Protection and Financial Cycles

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  • Arturo Galindo
  • Alejandro Micco
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    Abstract

    We develop a model in which the elasticity of credit to exogenous shocks depends on creditor rights regulations. We show that an increase in creditor protection reduces the elasticity of credit supply to exogenous shocks, and hence the amplitude of the credit cycle. Using an extended set of a measure of creditor rights protection in the spirit of La Porta et al. (1998), we find that stricter creditor rights regulations not only increase the breadth of the credit market but also reduce the volatility of the credit cycle.

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    File URL: http://www.iadb.org/document.cfm?pubDetail=1&id=788264
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    Bibliographic Info

    Paper provided by Inter-American Development Bank in its series IDB Publications with number 6481.

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    Date of creation: Apr 2001
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    Handle: RePEc:idb:brikps:6481

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    Related research

    Keywords: Financial Sector; WP-443;

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    Cited by:
    1. Alvaro Aguirre & César Calderón, 2005. "Financial Frictions and Real Devaluations," Working Papers Central Bank of Chile 318, Central Bank of Chile.
    2. Huang, Rocco R., 2008. "Tolerance for uncertainty and the growth of informationally opaque industries," Journal of Development Economics, Elsevier, vol. 87(2), pages 333-353, October.
    3. Matías Braun & Borja Larrain, 2005. "Finance and the Business Cycle: International, Inter-Industry Evidence," Journal of Finance, American Finance Association, vol. 60(3), pages 1097-1128, 06.

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