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Economic Performance, creditor protection and labor inflexibility

  • Felipe Balmaceda
  • Ronald Fischer

    ()

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.

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File URL: http://www.dii.uchile.cl/~cea/sitedev/cea/www/download.php?file=documentos_trabajo/ASOCFILE120090307183724.pdf
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Paper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 259.

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Date of creation: 2009
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Handle: RePEc:edj:ceauch:259
Contact details of provider: Web page: http://www.dii.uchile.cl/cea/

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  18. Mike Burkart & Tore Ellingsen, 2004. "In-Kind Finance: A Theory of Trade Credit," American Economic Review, American Economic Association, vol. 94(3), pages 569-590, June.
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