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Emerging Markets Variance Shocks: Local or International in Origin?

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Listed:
  • Viviana Fernández
  • Brian M. Lucey

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Abstract

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.

Suggested Citation

  • Viviana Fernández & Brian M. Lucey, 2008. "Emerging Markets Variance Shocks: Local or International in Origin?," Documentos de Trabajo 251, Centro de Economía Aplicada, Universidad de Chile.
  • Handle: RePEc:edj:ceauch:251
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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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    References listed on IDEAS

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    1. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2013. "The Basic Public Finance Of Public–Private Partnerships," Journal of the European Economic Association, European Economic Association, vol. 11(1), pages 83-111, February.
    2. Eduardo Engel & Ronald Fischer, 2008. "Optimal Resource Extraction Contracts Under Threat of Expropriation," NBER Working Papers 13742, National Bureau of Economic Research, Inc.
    3. Sebátian Infante & Nicolás Figueroa & Ronald Fischer, 2007. "Competition with asymmetric switching costs," Documentos de Trabajo 241, Centro de Economía Aplicada, Universidad de Chile.
    4. Quentin David & Alexandre Janiak & Etienne Wasmer, 2008. "Local social capital and geographical mobility. A theory," Documentos de Trabajo 248, Centro de Economía Aplicada, Universidad de Chile.
    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. Vasiliki Skreta & Nicolas Figueroa, 2007. "What to Put on the Table," Levine's Bibliography 843644000000000374, UCLA Department of Economics.
    7. Felipe Balmaceda & Ronald Fischer, 2010. "Economic performance, creditor protection, and labour inflexibility," Oxford Economic Papers, Oxford University Press, vol. 62(3), pages 553-577, July.
    8. 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.
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    10. Ronald Fischer, 2008. "Política comercial estratégica en el mercado aéreo chileno," Documentos de Trabajo 246, Centro de Economía Aplicada, Universidad de Chile.
    11. 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.
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    Cited by:

    1. Efe Çağlar Çağli & Pinar Evrim Mandaci & Pinar Hakan Kahyaoğlu, 2011. "Volatility Shifts and Persistence in Variance: Evidence from the Sector Indices of Istanbul Stock Exchange," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 4(3), pages 119-140, December.
    2. Alexandre Janiak, 2008. "Welfare in models of trade with heterogeneous firms," Documentos de Trabajo 253, Centro de Economía Aplicada, Universidad de Chile.

    More about this item

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets

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