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Using Credit Subsidies to Counteract a Credit Bust

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  • Jiri Podpiera

Abstract

Emerging markets are particularly vulnerable to boom-bust credit cycles, due to excessive capital flows, shallow equity markets, and companies'' high leverage and open FX positions. While the policy debate on how to respond to boom-bust credit cycles remains unsettled, it has been conjectured that credit subsidies may provide a particularly effective policy tool to counter a credit bust. This paper reports on a rare policy experiment where credit subsidies were used to buffer the impact of the global financial crisis on Serbia in 2009. Model simulations suggest that credit subsidies in Serbia helped to mitigate the slump in output.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/285.

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Length: 21
Date of creation: 01 Dec 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/285

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Keywords: Capital flows; Credit subsidies; Economic models; Emerging markets; Exchange rates; Interest rate subsidies; subsidies; subsidy; financial sector; credit subsidy; cash flows; free cash flows; cash flow; interest rate subsidy; free cash flow; hedging; reserve requirement; domestic capital; equity markets; nominal exchange rate; derivative;

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  1. Jerome Adda & Russell Cooper, 1997. "Balladurette and Juppette: A Discrete Analysis of Scrapping Subsidies," Papers 0076, Boston University - Industry Studies Programme.
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