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Relationship Networks in Banking Around a Sovereign Default and Currency Crisis

Author

Listed:
  • Pablo D’Erasmo

    (Federal Reserve Bank of Philadelphia)

  • Hernán Moscoso Boedo

    (University of Cincinnati)

  • María Pía Olivero

    (Drexel University
    Swarthmore College)

  • Máximo Sangiácomo

    (Central Bank of Argentina)

Abstract

We study how banks’ exposure to a sovereign crisis gets transmitted onto the corporate sector. To do so, we use data on the universe of banks and firms in Argentina during the crisis of 2001. We build a model characterized by matching frictions in which firms establish (long-term) relationships with banks that are subject to balance sheet disruptions. Credit relationships with banks more exposed to the crisis suffer the most. However, this relationship-level effect overstates the true cost of the crisis since profitable firms (e.g., exporters after a devaluation) might find it optimal to switch lenders, reducing the negative impact on overall credit and activity. Using linked bank-firm and firm-level data, we find evidence largely consistent with our theory.

Suggested Citation

  • Pablo D’Erasmo & Hernán Moscoso Boedo & María Pía Olivero & Máximo Sangiácomo, 2020. "Relationship Networks in Banking Around a Sovereign Default and Currency Crisis," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(3), pages 584-642, September.
  • Handle: RePEc:pal:imfecr:v:68:y:2020:i:3:d:10.1057_s41308-020-00114-4
    DOI: 10.1057/s41308-020-00114-4
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    More about this item

    Keywords

    E32; G21; H63; N26;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • N26 - Economic History - - Financial Markets and Institutions - - - Latin America; Caribbean

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