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Emerging Markets Variance Shocks: Local or International in Origin?

  • Viviana Fernández
  • Brian M. Lucey

    ()

We present a static general equilibrium model of an economy with agents with heterogeneous wealth and endogenous credit constraints created by partial loan recovery rates. Higher loan recovery rates and better bankruptcy protection increase output and credit penetration, while the former raises the average interest rate spread and the latter decreases it. We also study the interaction of credit constraint with differences in wealth distribution across countries. In a closed economy, higher loan recovery rates and better bankruptcy legislation raise the prime interest rate, as well as the interest rate spread. We incorporate a labor market in order to analyze the interaction between increased labor protection and credit restrictions. We find that stronger labor protection leads to lower wages and output. Nevertheless they will be supported by workers in firms with strong balance sheets and opposed by workers and employers in firms with weak balance sheets. JEL Class.: G38, E44, D53.

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File URL: http://www.dii.uchile.cl/~cea/sitedev/cea/www/download.php?file=documentos_trabajo/ASOCFILE120081009163949.pdf
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Paper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 251.

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Date of creation: 2008
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Handle: RePEc:edj:ceauch:251
Contact details of provider: Web page: http://www.dii.uchile.cl/cea/

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  1. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2007. "The Basic Public Finance of Public-Private Partnerships," Cowles Foundation Discussion Papers 1618, Cowles Foundation for Research in Economics, Yale University, revised Jan 2011.
  2. Ronald Fischer, 2008. "Política comercial estratégica en el mercado aéreo chileno," Documentos de Trabajo 246, Centro de Economía Aplicada, Universidad de Chile.
  3. Vasiliki Skreta & Nicolas Figueroa, 2007. "What to Put on the Table," Levine's Bibliography 843644000000000374, UCLA Department of Economics.
  4. David, Quentin & Janiak, Alexandre & Wasmer, Etienne, 2008. "Local Social Capital and Geographical Mobility: A Theory," IZA Discussion Papers 3668, Institute for the Study of Labor (IZA).
  5. David Laibson & Andrea Repetto & Jeremy Tobacman, 2005. "Estimating Discount Functions with Consumption Choices over the Lifecycle," Levine's Bibliography 784828000000000643, UCLA Department of Economics.
  6. Eduardo Engel & Ronald Fischer, 2008. "Optimal Resource Extraction Contracts Under Threat of Expropriation," NBER Working Papers 13742, National Bureau of Economic Research, Inc.
  7. Ronald Fischer, 2008. "Economic performance, creditor protection and labor inflexibility," Documentos de Trabajo 250, Centro de Economía Aplicada, Universidad de Chile.
  8. Mizala, Alejandra & Urquiola, Miguel, 2013. "School markets: The impact of information approximating schools' effectiveness," Journal of Development Economics, Elsevier, vol. 103(C), pages 313-335.
  9. Nicolás Figueroa & Ronald Fischer & Sebastian Infante, 2008. "Loyalty inducing programs and competition with homogeneous goods," Documentos de Trabajo 249, Centro de Economía Aplicada, Universidad de Chile.
  10. M. Soledad Arellano & Pablo Serra, 2007. "Marginal Cost Pricing in Hydro-Thermal Power Industries: Is a Capacity Charge Always Needed?," Documentos de Trabajo 238, Centro de Economía Aplicada, Universidad de Chile.
  11. Sebátian Infante & Nicolás Figueroa & Ronald Fischer, 2007. "Competition with asymmetric switching costs," Documentos de Trabajo 241, Centro de Economía Aplicada, Universidad de Chile.
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