Financial frictions and business cycles in middle income countries /

Financial frictions and business cycles in middle income countries /

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Bibliographic Details
Author / Creator:Guajardo, Jaime, author.
Imprint:Washington, D.C. : International Monetary Fund, IMF Institute, 2008.
Description:1 online resource (61 pages) : illustrations
Language:English
Series:IMF working paper, 2227-8885 ; WP/08/20
IMF working paper ; WP/08/20.
Subject:
Business cycles -- Econometric models.
Credit -- Econometric models.
Finance -- Econometric models.
Business cycles -- Econometric models.
Credit -- Econometric models.
Finance -- Econometric models.
Format: E-Resource Book
URL for this record:http://pi.lib.uchicago.edu/1001/cat/bib/12497071
Hidden Bibliographic Details
Other authors / contributors:IMF Institute.
International Monetary Fund.
ISBN:1282551108
9781282551107
1451913354
9781451913354
Notes:Includes bibliographical references (pages 30-32).
Restrictions unspecified
Electronic reproduction. [Place of publication not identified] : HathiTrust Digital Library, 2010.
Master and use copy. Digital master created according to Benchmark for Faithful Digital Reproductions of Monographs and Serials, Version 1. Digital Library Federation, December 2002. http://purl.oclc.org/DLF/benchrepro0212
digitized 2010 HathiTrust Digital Library committed to preserve
Print version record.
Summary:A standard DSGE small open economy model can not generate the cyclical regularities of middle-income countries. It predicts excessive consumption smoothing, and procyclical, instead of countercyclical, real net exports. Previous studies have solved this problem by increasing the shocks' persistence or by lowering the intertemporal elasticity of substitution. This paper tackles the problem by introducing market imperfections relevant for MICs into an otherwise standard model. More specifically, I build a model with limited access to the foreign capital market, identified as an external borrowing constraint, and asymmetric financing opportunities across nontradable and tradable sectors, identified as a sector-specific labor financing wedge. The key parameters associated to these frictions are deduced to replicate selected data for Chile between 1986 and 2004. I find that both frictions are necessary to replicate the cyclical regularities of middle-income countries as they help the model reproduce different features of the data: The external borrowing constraint makes investment and consumption of tradable goods more procyclical and volatile, and makes real net exports countercyclical, while the sector-specific labor financing wedge makes the model reproduce the cyclical moments of work hours and consumption of non tradable goods.
Other form:Print version: Guajardo, Jaime. Financial frictions and business cycles in middle income countries. Washington, D.C. : International Monetary Fund, IMF Institute, 2008
Standard no.:10.5089/9781451913354.001
Table of Contents:
  • I. Introduction; II. Empirical Evidence and Related Literature; III. Model 1: Frictionless Small Open Economy; A. Households; B. Firms; C. Competitive Equilibrium; D. Steady State and Calibration; E. Simulations; IV. Model 2: Borrowing-Constrained Economy; A. Households; B. Firms; C. Competitive Equilibrium; D. External Lenders; E. Steady State and Calibration; F. Simulations; V. Model 3: Asymmetric Financing Costs; A. Households; B. Firms; C. Competitive Equilibrium; D. Steady State and Calibration; E. Simulations.
  • VI. Model 4: External Borrowing Constraint and Asymmetric Financing CostsA. Households; B. Firms; C. Competitive Equilibrium; D. Steady State and Calibration; E. Simulations; VII. Conclusions; Appendix I. Labor Financing Wedges Based on Collateral Constraints; References; Tables; 1. Business Cycles Moments, Annual Data: 1980-200; 2. Data Moments, Chile: 1986-2004; 3. Calibration and Macroeconomic Aggregates; 4. Shock Processes in Model 1; 5. Data and Model 1 Simulations: Frictionless Economy; 6. Shock Processes in Model 2; 7. Data and Model 2 Simulations: Credit Constraint.
  • 8. Shock Processes in Model 39. Data and Model 3 Simulations: Labor Wedges; 10. Shock Processes in Model 4; 11. Data and Model 4 Simulations: Credit Constraint and Labor Wedges; 12. Shock Processes in Reduced-Frictions Model; 13. Data and Reduced-Frictions Model Simulations; Figures; 1. Chile: Domestic and External Shocks, and Financial Frictions; 2. Data and Model 1 Simulations: Frictionless Economy; 3. Real Exchange Rates and Foreign Lending Spreads in Model 1; 4. Data and Model 2 Simulations: Credit Constraint; 5. Real Exchange Rates and Foreign Lending Spreads in Model 2.
  • 6. Data and Model 3 Simulations: Labor Wedges7. Real Exchange Rates and Foreign Lending Spreads in Model 3; 8. Chile: Self Financing Requirement and Labor Financing Wedges; 9. Data and Model 4 Simulations: Credit Constraint and Labor Wedges; 10. Real Exchange Rates and Foreign Lending Spreads in Model 4; 11. Data and Reduced-Friction Model Simulations.

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