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Lending constraints, real estate prices and business cycles in emerging economies

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  • Minetti, Raoul
  • Peng, Tao

Abstract

We investigate a small open economy with constraints in both the domestic and the international credit market. The informational opaqueness of the domestic market hinders foreign lenders' activity, so that entrepreneurs face looser borrowing constraints vis-à-vis domestic financiers. However, limited capitalization constrains domestic lenders. Calibrating the model to data from Argentina, we find that the interaction between lending and borrowing constraints is a channel through which real interest rate shocks generate fluctuations in output, real estate prices and consumption. External financial liberalization increases volatility and affects welfare more than domestic liberalization but also mitigates the destabilizing impact of domestic deregulation.

Suggested Citation

  • Minetti, Raoul & Peng, Tao, 2013. "Lending constraints, real estate prices and business cycles in emerging economies," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2397-2416.
  • Handle: RePEc:eee:dyncon:v:37:y:2013:i:12:p:2397-2416
    DOI: 10.1016/j.jedc.2013.07.007
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    Cited by:

    1. Chris Garbers & Guangling Liu, 2016. "Credit market heterogeneity, balance sheet (in) dependence, financial shocks," Working Papers 633, Economic Research Southern Africa.
    2. Gunn, Christopher M. & Johri, Alok, 2018. "Financial News, Banks, And Business Cycles," Macroeconomic Dynamics, Cambridge University Press, vol. 22(02), pages 173-198, March.
    3. Daniel Baksa & Istvan Konya, 2017. "Interest premium and economic growth: the case of CEE," IEHAS Discussion Papers 1712, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    4. Amador-Torres, Juan S. & Gomez-Gonzalez, Jose Eduardo & Ojeda-Joya, Jair N. & Jaulin-Mendez, Oscar F. & Tenjo-Galarza, Fernando, 2016. "Mind the gap: Computing finance-neutral output gaps in Latin-American economies," Economic Systems, Elsevier, vol. 40(3), pages 444-452.
    5. Chris Garbers & Guangling Liu, 2017. "Macroprudential policy and foreign interest rate shocks: A comparison of different instruments and regulatory regimes," Working Papers 15/2017, Stellenbosch University, Department of Economics.
    6. Kónya, István & Baksa, Dániel, 2017. "Növekedés és pénzügyi környezet
      [Growth and the financial environment]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 349-376.

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