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Lending Booms, Sharp Reversals and Real Exchange Rate Dynamics

  • Gopinath, Gita
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    Emerging markets in the 1990s experienced periods of booms followed by collapses in gross domestic product, consumption, traded and non-traded sector output and real exchange rate movements alongside unprecedented movements in foreign investor participation in these economies. An important feature of these episodes is the asymmetry in the pattern of booms and collapses. We introduce a natural search friction into the foreign investment decision in a small open economy and demonstrate that this can generate the asymmetry observed in the data. The magnitude of the reversals predicted by the model can be quantitatively large and empirically relevant.

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    File URL: http://dash.harvard.edu/bitstream/handle/1/11988005/Gopinath_LendingBooms.pdf
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    Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 11988005.

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    Date of creation: 2003
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    Publication status: Published in Journal of International Economics
    Handle: RePEc:hrv:faseco:11988005
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    1. repec:idb:brikps:6499 is not listed on IDEAS
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