IDEAS home Printed from https://ideas.repec.org/p/fip/fedmsr/429.html
   My bibliography  Save this paper

Larger crises, slower recoveries: the asymmetric effects of financial frictions

Author

Listed:
  • Guillermo L. Ordoñez

Abstract

It is well known that movements in lending rates are asymmetric; they rise quickly and sharply, but fall slowly and gradually. Not known is the fact that the asymmetry is stronger the less developed a country's financial system is. This new fact is here documented and explained in a model with an endogenous flow of information about economic conditions. The stronger asymmetry in less developed countries stems from their greater financial system frictions, such as monitoring and bankruptcy costs, which first magnify jumps of lending rates and then delay their recoveries by restricting the generation of information after the crisis. A quantitative exploration of the model shows the data are consistent with this explanation.

Suggested Citation

  • Guillermo L. Ordoñez, 2009. "Larger crises, slower recoveries: the asymmetric effects of financial frictions," Staff Report 429, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmsr:429
    as

    Download full text from publisher

    File URL: http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=4239
    Download Restriction: no

    File URL: http://www.minneapolisfed.org/research/SR/SR429.pdf
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mäkinen, Taneli & Ohl, Björn, 2015. "Information acquisition and learning from prices over the business cycle," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 585-633.

    More about this item

    Keywords

    Financial crises ; Developing countries;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedmsr:429. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jannelle Ruswick). General contact details of provider: http://edirc.repec.org/data/frbmnus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.