Sudden Stops, Output Drops, and Credit Collapses
AbstractThis paper proposes a tractable Sudden Stop model to explain the main patterns in firm level data in a sample of Southeast Asian firms during the Asian crisis. The model, which features trend shocks and financial frictions, is able to generate the main patterns observed in the sample during and following the Asian crisis, including the ensuing credit-less recovery, which are also patterns broadly shared by most Sudden Stop episodes as documented in Calvo et al. (2006). The model also proposes a novel explanation as to why small firms experience steeper declines than their larger peers as documented in this paper. This size effect is generated under the assumption that small firms are growth firms, to which there is support in the data. Trend shocks when combined with financial frictions in this model also generate strong leverage effects in line with what is observed in the sample, and with other observations from the literature.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 10/176.
Date of creation: 01 Jul 2010
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-02 (All new papers)
- NEP-DGE-2010-10-02 (Dynamic General Equilibrium)
- NEP-IFN-2010-10-02 (International Finance)
- NEP-MAC-2010-10-02 (Macroeconomics)
- NEP-SEA-2010-10-02 (South East Asia)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Guillermo A. Calvo & Alejandro Izquierdo & Ernesto Talvi, 2006. "Sudden Stops and Phoenix Miracles in Emerging Markets," American Economic Review, American Economic Association, American Economic Association, vol. 96(2), pages 405-410, May.
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