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Contagion, bank lending spreads, and output fluctuations

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Author Info
Agenor, Pierre-Richard
Aizenman, Joshua
Hoffmaister, Alexander

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Abstract

The authors study how contagion affects bank lending spreads and fluctuations in output in Argentina. They analyze what determines bank lending spreads when verification and enforcement costs for loan contracts are high. They present estimates of a vector auto-regression model that relates bank lending spreads, the cyclical component of output, the real bank lending rate, and the spread in external interest rates. Using generalized impulse response functions, they show that a positive historical shock to external spreads leads to an increase in domestic spreads and a reduction in the cyclical component of output. Historical decompositions indicate that shocks to external spreads immediately after the Mexican peso crisis had a sizable effect on movements in output and domestic interest rate spreads in Argentina.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2186.

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Date of creation: 30 Sep 1999
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Handle: RePEc:wbk:wbrwps:2186

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Keywords: Information Technology; Landfills; Water Education; General Technology; Sustainable Land and Crop Management; Banks&Banking Reform; Economic Theory&Research; Financial Intermediation; Environmental Economics&Policies; International Terrorism&Counterterrorism;

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References listed on IDEAS
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.:
  1. Pierre-Richard Agenor & Joshua Aizenman, 1998. "Contagion and Volatility with Imperfect Credit Markets," IMF Staff Papers, Palgrave Macmillan Journals, vol. 45(2), pages 1. [Downloadable!] (restricted)
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  2. Isard, Peter & Mathieson, Donald J. & Rojas-Suarez, Liliana, 1996. "A framework for the analysis of financial reforms and the cost of official safety nets," Journal of Development Economics, Elsevier, vol. 50(1), pages 25-79, June. [Downloadable!] (restricted)
  3. Sebastian Edwards & Carlos A. Vegh, 1997. "Banks and Macroeconomics Disturbances under Predetermined Exchange Rates," NBER Working Papers 5977, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know About Unit Roots," NBER Technical Working Papers 0100, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Pierre-Richard Agénor, 1997. "Borrowing Risk and the Tequila Effect," IMF Working Papers 97/86, International Monetary Fund.
  6. Bruce C. Greenwald & Joseph E. Stiglitz, 1993. "Financial Market Imperfections and Business Cycles," NBER Working Papers 2494, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January. [Downloadable!] (restricted)
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  8. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March. [Downloadable!] (restricted)
  9. Robert Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report 45, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  10. Ho, Thomas S. Y. & Saunders, Anthony, 1981. "The Determinants of Bank Interest Margins: Theory and Empirical Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(04), pages 581-600, November. [Downloadable!]
  11. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Pierre-Richard Agénor & Peter Montiel, 2008. "Monetary Policy Analysis in a Small Open Credit-Based Economy," Open Economies Review, Springer, vol. 19(4), pages 423-455, September. [Downloadable!] (restricted)
    Other versions:
  2. Chowdhury, Abdur R., 2001. "The Impact of Financial Reform on Private Savings in Bangladesh," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  3. Pierre-Richard Agénor & Joshua Aizenman, 2005. "Financial sector inefficiencies and the debt Laffer curve," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(1), pages 1-13. [Downloadable!]
    Other versions:
  4. Yong Sarah Zhou, 2008. "Capital Flows and Economic Fluctuations: The Role of Commercials Banks in Transmitting Shocks," IMF Working Papers 08/12, International Monetary Fund. [Downloadable!]
  5. Herrera, Santiago & Perry, Guillermo & Quintero, Neile, 2000. "Output fluctuations in Latin America - what explains the recent slowdown?," Policy Research Working Paper Series 2333, The World Bank. [Downloadable!]
  6. Aaron Tornell & Frank Westermann, 2003. "The Credit Channel in Middle Income Countries," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  7. Pierre-Richard Agenor & Joshua Aizenman, 1999. "Financial Sector Inefficiencies and Coordinate Failures: Implications for Crisis Management," NBER Working Papers 7446, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Aaron Tornell, 2002. "The Credit Channel in Middle Income Countries (October 2002), with Frank Westermann," UCLA Economics Online Papers 216, UCLA Department of Economics. [Downloadable!]
  9. Caprio, Gerard & Honohan, Patrick, 2001. "Finance for Growth: Policy Choices in a Volatile World," MPRA Paper 9929, University Library of Munich, Germany. [Downloadable!]
  10. Stijn Claessens & Thomas Glaessner & Daniela Klingebiel, 2002. "Electronic Finance: Reshaping the Financial Landscape Around the World," Journal of Financial Services Research, Springer, vol. 22(1), pages 29-61, August. [Downloadable!] (restricted)
  11. Pierre-Richard Agenor & Joshua Aizenman, 2008. "Capital Market Imperfections and the Theory of Optimum Currency Areas," NBER Working Papers 14088, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Santiago Herrera & Guillermo Perry & Neile Quintero, 2000. "Output Fluctuations in Latin America: What Explains the Recent Slowdown?," Macroeconomics 0004012, EconWPA. [Downloadable!]
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