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Endogenous Borrowing Constraints and Stagnation in Latin America

  • Paulina Restrepo-Echavarria

    (University of California Los Angeles)

Abstract Latin America has had striking changes in economic performance over time. None more striking than consumption. Consumption per-capita in the year 2004 was roughly the same as it was in 1980. Latin America is also an open economic region, with several international debt crises. This paper studies the time path of consumption using a small open economy real business cycle model with limited commitment. I compare the distortions to the planner's pareto weights and investment that are generated endogenously by the model, to those that can be recovered from an international extension of a business cycle accounting exercise in the spirit of Chari, Kehoe and McGrattan (2007). I find that the limited commitment model does a good job at explaining the behavior of Latin American consumption and that the endogenous distortions to the planner's pareto weights are very similar to those recovered from the accounting exercise.

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Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 470.

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Date of creation: 2010
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Handle: RePEc:red:sed010:470
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  1. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2006. "Business cycle accounting," Staff Report 328, Federal Reserve Bank of Minneapolis.
  2. Kehoe, Timothy J & Levine, David K, 1993. "Debt-Constrained Asset Markets," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 865-88, October.
  3. Mark Aguiar & Gita Gopinath, 2004. "Emerging market business cycles: the cycle is the trend," Working Papers 04-4, Federal Reserve Bank of Boston.
  4. Canova, Fabio, 1998. "Detrending and business cycle facts," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 475-512, May.
  5. Aguiar, Mark & Gopinath, Gita, 2007. "Emerging Market Business Cycles: The Cycle is the Trend," Scholarly Articles 11988098, Harvard University Department of Economics.
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  8. Patrick J. Kehoe & Fabrizio Perri, 2000. "International Business Cycles with Endogenous Incomplete Markets," NBER Working Papers 7870, National Bureau of Economic Research, Inc.
  9. Pablo A. Neumeyer & Fabrizio Perri, 2004. "Business cycles in emerging economies: the role of interest rates," Staff Report 335, Federal Reserve Bank of Minneapolis.
  10. Kocherlakota, Narayana R, 1996. "Implications of Efficient Risk Sharing without Commitment," Review of Economic Studies, Wiley Blackwell, vol. 63(4), pages 595-609, October.
  11. Fernández-Villaverde, Jesús & Rubio-Ramírez, Juan Francisco, 2006. "Estimating Macroeconomic Models: A Likelihood Approach," CEPR Discussion Papers 5513, C.E.P.R. Discussion Papers.
  12. Atkeson, Andrew, 1991. "International Lending with Moral Hazard and Risk of Repudiation," Econometrica, Econometric Society, vol. 59(4), pages 1069-89, July.
  13. Paulina Restrepo Echavarria & Mark L. J. Wright & Lee E. Ohanian, 2009. "Bad Investments and Missed Opportunities: Capital Flows to Latin America and Asia, 1950-2004," 2009 Meeting Papers 1099, Society for Economic Dynamics.
  14. Mark Aguiar & Manuel Amador & Gita Gopinath, 2007. "Investment Cycles and Sovereign Debt Overhang," NBER Working Papers 13353, National Bureau of Economic Research, Inc.
  15. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1992. "International Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 745-75, August.
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  17. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
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