Interest Rates, Leverage, and Business Cycles in Emerging Economies: The Role of Financial Frictions

Andrés Fernández Martin and Adam Gulan

American Economic Journal: Macroeconomics, 2015, vol. 7, issue 3, 153-88

Abstract: Countercyclical country interest rates have been shown to be an important characteristic of business cycles in emerging markets. In this paper we provide a microfounded rationale for this pattern by linking interest rate spreads to the dynamics of corporate leverage. For this purpose we embed a financial accelerator into a business cycle model of a small open economy and estimate it on a novel panel dataset for emerging economies that merges macroeconomic and financial data. The model accounts well for the empirically observed countercyclicality of interest rates and leverage, as well as for other stylized facts. (JEL E13, E32, E43, E44, F41, O11)

JEL-codes: E13 E32 E43 E44 F41 O11 (search for similar items in EconPapers)
Date: 2015
Note: DOI: 10.1257/mac.20120141
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (70)

Downloads: (external link)
http://www.aeaweb.org/articles.php?doi=10.1257/mac.20120141 (application/pdf)
http://www.aeaweb.org/aej/mac/ds/0703/2012-0141_ds.zip (application/zip)
http://www.aeaweb.org/aej/mac/data/0703/2012-0141_data.zip (application/zip)
http://www.aeaweb.org/aej/mac/app/0703/2012-0141_app.pdf (application/pdf)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: Interest Rates and Business Cycles in Emerging Economies.The Role of Financial Frictions (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aejmac:v:7:y:2015:i:3:p:153-88

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Journal: Macroeconomics is currently edited by Simon Gilchrist

More articles in American Economic Journal: Macroeconomics from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().