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Endogenous Borrowing Constraints and Stagnation in Latin America

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  • Paulina Restrepo-Echavarria

    (University of California Los Angeles)

Abstract

Abstract Latin America has had striking changes in economic performance over time. None more striking than consumption. Consumption per-capita in the year 2004 was roughly the same as it was in 1980. Latin America is also an open economic region, with several international debt crises. This paper studies the time path of consumption using a small open economy real business cycle model with limited commitment. I compare the distortions to the planner's pareto weights and investment that are generated endogenously by the model, to those that can be recovered from an international extension of a business cycle accounting exercise in the spirit of Chari, Kehoe and McGrattan (2007). I find that the limited commitment model does a good job at explaining the behavior of Latin American consumption and that the endogenous distortions to the planner's pareto weights are very similar to those recovered from the accounting exercise.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 470.

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Date of creation: 2010
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Handle: RePEc:red:sed010:470

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  1. Jesus Fernandez-Villaverde & Juan F. Rubio-Ramirez, 2006. "Estimating Macroeconomic Models: A Likelihood Approach," NBER Technical Working Papers 0321, National Bureau of Economic Research, Inc.
  2. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1987. "International real business cycles," Working Papers 426, Federal Reserve Bank of Minneapolis.
  3. Patrick J. Kehoe & Fabrizio Perri, 2000. "International business cycles with endogenous incomplete markets," Staff Report 265, Federal Reserve Bank of Minneapolis.
  4. Kehoe, Timothy J & Levine, David K, 1993. "Debt-Constrained Asset Markets," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 865-88, October.
  5. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2007. "Business Cycle Accounting," Econometrica, Econometric Society, vol. 75(3), pages 781-836, 05.
  6. Canova, Fabio, 1998. "Detrending and business cycle facts: A user's guide," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 533-540, May.
  7. Canova, Fabio, 1993. "Detrending and Business Cycle Facts," CEPR Discussion Papers 782, C.E.P.R. Discussion Papers.
  8. Pablo A. Neumeyer & Fabrizio Perri, 2004. "Business cycles in emerging economies: the role of interest rates," Staff Report 335, Federal Reserve Bank of Minneapolis.
  9. Atkeson, Andrew, 1991. "International Lending with Moral Hazard and Risk of Repudiation," Econometrica, Econometric Society, vol. 59(4), pages 1069-89, July.
  10. Mark Aguiar & Manuel Amador & Gita Gopinath, 2007. "Investment Cycles and Sovereign Debt Overhang," NBER Working Papers 13353, National Bureau of Economic Research, Inc.
  11. Paulina Restrepo Echavarria & Mark L. J. Wright & Lee E. Ohanian, 2009. "Bad Investments and Missed Opportunities: Capital Flows to Latin America and Asia, 1950-2004," 2009 Meeting Papers 1099, Society for Economic Dynamics.
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