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Contagion, Bank Lending Spreads and Output Fluctuations

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Abstract

This paper studies the effects of contagion on bank lending spreads and output fluctuations in Argentina. The first part presents the analytical framework, which analyzes the determination of bank lending spreads in the presence of verification and enforcement costs of loan contracts. The second part presents estimates of a vector autoregression model that relates the ex ante bank lending spread, the cyclical component of output, the real bank lending rate, and the external interest rate spread. The effects of a contagious shock (modeled as a positive historical shock in the external interest rate spread) are analyzed using generalized impulse response functions. The sock is shown to lead to an increase in domestic spreads and a reduction in the cyclical component of output. These results are consistent with the predictions of our analytical framework.

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  • P.R. Agenor & J. Aizenman & A. Hoffmaister, 1998. "Contagion, Bank Lending Spreads and Output Fluctuations," NBER Working Papers 6850, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:6850
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    Cited by:

    1. Agénor, Pierre-Richard & Aizenman, Joshua, 2011. "Capital market imperfections and the theory of optimum currency areas," Journal of International Money and Finance, Elsevier, vol. 30(8), pages 1659-1675.
    2. Pierre-Richard Agénor & Joshua Aizenman, 2005. "Financial sector inefficiencies and the debt Laffer curve," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(1), pages 1-13.
    3. Pierre-Richard Agénor & Peter Montiel, 2008. "Monetary Policy Analysis in a Small Open Credit-Based Economy," Open Economies Review, Springer, vol. 19(4), pages 423-455, September.
    4. Herrera, Santiago & Perry, Guillermo & Quintero, Neile, 2000. "Output fluctuations in Latin America - what explains the recent slowdown?," Policy Research Working Paper Series 2333, The World Bank.
    5. Aaron Tornell, 2002. "The Credit Channel in Middle Income Countries (October 2002), with Frank Westermann," UCLA Economics Online Papers 216, UCLA Department of Economics.
    6. Caprio, Gerard & Honohan, Patrick, 2001. "Finance for Growth: Policy Choices in a Volatile World," MPRA Paper 9929, University Library of Munich, Germany.
    7. Khalid, Ahmed M. & Kawai, Masahiro, 2003. "Was financial market contagion the source of economic crisis in Asia?: Evidence using a multivariate VAR model," Journal of Asian Economics, Elsevier, vol. 14(1), pages 131-156, February.
    8. Aaron Tornell & Frank Westermann, 2002. "The Credit Channel in Middle Income Countries," NBER Working Papers 9355, National Bureau of Economic Research, Inc.
    9. Pierre-Richard Agenor & Joshua Aizenman, 1999. "Financial Sector Inefficiencies and Coordinate Failures: Implications for Crisis Management," NBER Working Papers 7446, National Bureau of Economic Research, Inc.
    10. Stijn Claessens & Thomas Glaessner & Daniela Klingebiel, 2002. "Electronic Finance: Reshaping the Financial Landscape Around the World," Journal of Financial Services Research, Springer;Western Finance Association, vol. 22(1), pages 29-61, August.
    11. Santiago Herrera & Guillermo Perry & Neile Quintero, 2000. "Output Fluctuations in Latin America: What Explains the Recent Slowdown?," Macroeconomics 0004012, EconWPA.
    12. Yong Sarah Zhou, 2008. "Capital Flows and Economic Fluctuations; The Role of Commercial Banks in Transmitting Shocks," IMF Working Papers 08/12, International Monetary Fund.
    13. Victor Pontines & Reza Siregar, 2009. "Tranquil and crisis windows, heteroscedasticity, and contagion measurement: MS-VAR application of the DCC procedure," Applied Financial Economics, Taylor & Francis Journals, vol. 19(9), pages 745-752.
    14. Ann Cavlovic & Kathleen Day, "undated". "Equalization and the Incentives for Growth: An Empirical Investigation of the "Tax-Back" Effect," Working Papers-Department of Finance Canada 2003-23, Department of Finance Canada.

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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