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El Embriague Financiero: Una Visión Alternativa de Amplificación Bancaria

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  • Elías Albagli

Abstract

This paper develops a model that explains the amplification of negative shocks faced by an economy through its banking system, but with a different grip as the standard financial accelerator theory. When a bank faces insolvency, it has incentives to continue sub-optimal projects in its portfolio, retarding or clutching the necessary process of creative destruction, which leads to sluggish economic performance. Considering three sectors, asymmetric information and agency problems, it is shown how the original magnitude of a generalized adverse shock can be amplified by the banking sector. The motivation of this study is provided by the current symptoms of the Japanese banking sector and the Chilean experience of the early 80´s debt crisis. These episodes show clear signals that validate the mechanisms identified by the theory, and suggest some measures to face crisis periods on a proper manner.

Suggested Citation

  • Elías Albagli, 2003. "El Embriague Financiero: Una Visión Alternativa de Amplificación Bancaria," Working Papers Central Bank of Chile 207, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:207
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    File URL: https://www.bcentral.cl/documents/33528/133326/DTBC_207.pdf
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    References listed on IDEAS

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    1. Anil K. Kashyap, 2002. "Sorting out Japan's financial crisis," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 26(Q IV), pages 42-55.
    2. Haizhou Huang & Chenggang Xu, 1999. "Financial Institutions, Financial Contagion, and Financial Crises," CID Working Papers 21, Center for International Development at Harvard University.
    3. Mr. Haizhou Huang & Chenggang Xu, 2000. "Financial Institutions, Financial Contagion, and Financial Crises," IMF Working Papers 2000/092, International Monetary Fund.
    4. Yehning Chen, 1999. "Banking Panics: The Role of the First-Come, First-Served Rule and Information Externalities," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 946-968, October.
    5. Mr. Edward J Frydl & Mr. Marc G Quintyn, 2000. "The Benefits and Costs of Intervening in Banking Crises," IMF Working Papers 2000/147, International Monetary Fund.
    6. Zender, Jaime F, 1991. "Optimal Financial Instruments," Journal of Finance, American Finance Association, vol. 46(5), pages 1645-1663, December.
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