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Economic Performance, creditor protection and labor inflexibility

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  • Felipe Balmaceda
  • Ronald Fischer

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.

Suggested Citation

  • Felipe Balmaceda & Ronald Fischer, 2009. "Economic Performance, creditor protection and labor inflexibility," Documentos de Trabajo 259, Centro de Economía Aplicada, Universidad de Chile.
    • Handle: RePEc:edj:ceauch:259
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    Cited by:

    1. Fischer, Ronald & Valenzuela, Patricio, 2013. "Financial openness, market structure and private credit: An empirical investigation," Economics Letters, Elsevier, vol. 121(3), pages 478-481.
    2. Fischer, Ronald & Huerta, Diego, 2021. "Wealth inequality and the political economy of financial and labour regulations," Journal of Public Economics, Elsevier, vol. 204(C).
    3. 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.
    4. Felipe Balmaceda, 2012. "On the Optimality of One-size-fits-all Contracts: The Limited Liability Case," Documentos de Trabajo 291, Centro de Economía Aplicada, Universidad de Chile.
    5. Janiak, Alexandre, 2008. "Welfare in Models of Trade with Heterogeneous Firms," IZA Discussion Papers 3803, Institute of Labor Economics (IZA).
    6. Ronald Fischer & Diego Huerta, 2015. "Economic Performance, Wealth Distribution and Credit Restrictions Under Variable Investment: The Open Economy," Working Papers Central Bank of Chile 765, Central Bank of Chile.
    7. Felipe Balmaceda, 2018. "Entrepreneurship: skills and financing," Small Business Economics, Springer, vol. 50(4), pages 871-886, April.
    8. Balmaceda, Felipe & Fischer, Ronald D. & Ramirez, Felipe, 2014. "Financial liberalization, market structure and credit penetration," Journal of Financial Intermediation, Elsevier, vol. 23(1), pages 47-75.
    9. Balmaceda, Felipe & Escobar, Juan F., 2017. "Trust in cohesive communities," Journal of Economic Theory, Elsevier, vol. 170(C), pages 289-318.
    10. Andreasen, Eugenia & Valenzuela, Patricio, 2016. "Financial openness, domestic financial development and credit ratings," Finance Research Letters, Elsevier, vol. 16(C), pages 11-18.
    11. Antonio Romero-Medina & Matteo Triossi, 2012. "Neutral Mergers Between Bilateral Markets," Documentos de Trabajo 292, Centro de Economía Aplicada, Universidad de Chile.
    12. Fischer, Ronald & Huerta, Diego & Valenzuela, Patricio, 2019. "The inequality-credit nexus," Journal of International Money and Finance, Elsevier, vol. 91(C), pages 105-125.
    13. Romero-Medina, Antonio & Triossi, Matteo, 2018. "Centralized Course Allocation," UC3M Working papers. Economics 27388, Universidad Carlos III de Madrid. Departamento de Economía.
    14. Ronald Fischer & Diego Huerta, 2016. "Economic Performance, Wealth Distribution and Credit Restrictions with Continuous Investment," Documentos de Trabajo 326, Centro de Economía Aplicada, Universidad de Chile.
    15. Diego Huerta & Ronald Fischer & Patricio Valenzuela, 2015. "Inequality and Private Credit," Documentos de Trabajo 316, Centro de Economía Aplicada, Universidad de Chile.
    16. Ronald Fischer & Nicolás Inostroza & Felipe J. Ramírez, 2015. "Banking Competition and Economic Stability," Documentos de Trabajo 320, Centro de Economía Aplicada, Universidad de Chile.

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