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Credit market imperfections, labor markets, and leverage dynamics in emerging economies

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  • Finkelstein Shapiro, Alan
  • González Gómez, Andrés

Abstract

Emerging economies (EMEs) have different credit and labor market structures relative to advanced economies. We document that economies with larger self-employment shares tend to exhibit less countercyclical leverage dynamics. We build a model where formal credit markets, input credit relationships, and the structure of labor markets interact that (1) captures a comprehensive set of EME business cycle regularities and (2) rationalizes our new fact. The interaction between firms’ net worth, interfirm input credit, and self-employment underlying our framework is critical for explaining our fact and is supported by the data.

Suggested Citation

  • Finkelstein Shapiro, Alan & González Gómez, Andrés, 2017. "Credit market imperfections, labor markets, and leverage dynamics in emerging economies," Journal of International Money and Finance, Elsevier, vol. 78(C), pages 44-63.
    • Handle: RePEc:eee:jimfin:v:78:y:2017:i:c:p:44-63
    DOI: 10.1016/j.jimonfin.2017.08.001
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    Cited by:

    1. Epstein, Brendan & Finkelstein Shapiro, Alan, 2019. "Financial development, unemployment volatility, and sectoral dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 99(C), pages 82-102.
    2. Epstein, Brendan & Finkelstein Shapiro, Alan & Gonzalez Gomez, Andres, 2018. "Global Financial Risk, Domestic Financial Access, and Unemployment Dynamics," MPRA Paper 88692, University Library of Munich, Germany.
    3. Nuguer, Victoria & González Gómez, Andrés & Finkelstein-Shapiro, Alan & Roldán-Peña, Jessica, 2018. "Price Dynamics and the Financing Structure of Firms in Emerging Economies," IDB Publications (Working Papers) 9061, Inter-American Development Bank.
    4. Ekkehard Ernst, 2019. "Finance and Jobs: How Financial Markets and Prudential Regulation Shape Unemployment Dynamics," JRFM, MDPI, vol. 12(1), pages 1-30, January.
    5. Finkelstein Shapiro, Alan, 2018. "Labor force participation, interest rate shocks, and unemployment dynamics in emerging economies," Journal of Development Economics, Elsevier, vol. 133(C), pages 346-374.

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    More about this item

    Keywords

    Emerging economy business cycles; Financial frictions; Labor search frictions; Self-employment; Credit policies;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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