Financial sector inefficiencies and the debt Laffer curve
The authors analyze the implications of inefficient financial intermediation for dbt management, using a model in which firms rely on bank credit to finance their working capital needs, and, lenders face a high state verification and enforcement costs of loan contracts. Their analysis shows that lower expected productivity, higher contract enforcement, and verification costs, or higher volatility of productivity shocks may shift the economy to the wrong side of the debt Laffer curve, with potentially sizable output, and welfare losses. The main implication of this analysis is that debt relief may generate little welfare gains, unless is accompanied by reforms aimed at reducing financial sector inefficiencies.
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- Joshua Aizenman & Pierre-Richard AgÃ©nor, 1997.
"Contagion and Volatility with Imperfect Credit Markets,"
IMF Working Papers
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- Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1991.
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National Bureau of Economic Research, Inc.
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45, Federal Reserve Bank of Minneapolis.
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- Elhanan Helpman, 1988.
"The Simple Analytics of Debt-Equity Swaps,"
NBER Working Papers
2771, National Bureau of Economic Research, Inc.
- Joshua Aizenman & Nancy P. Marion, 1999.
"Uncertainty and the disappearance of international credit,"
Federal Reserve Bank of San Francisco, issue Sep.
- Joshua Aizenman & Nancy P. Marion, 1999. "Uncertainty and the Disappearance of International Credit," NBER Working Papers 7389, National Bureau of Economic Research, Inc.
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"Financing vs. forgiving a debt overhang,"
Journal of Development Economics,
Elsevier, vol. 29(3), pages 253-268, November.
- Agenor, Pierre-Richard*Aizenman, Joshua*Hoffmais, 1999.
"Contagion, bank lending spreads, and output fluctuations,"
Policy Research Working Paper Series
2186, The World Bank.
- 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.
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