Testing for Balance Sheet Effects in Emerging Markets: A Non‐Crisis Setting
Uluc Aysun ()
International Finance, 2010, vol. 13, issue 2, 223-256
The literature has established that emerging market economies are better insulated from large external shocks during a financial crisis when they adopt a flexible exchange rate regime. Looking at the strength of firms' balance sheets, this paper shows that the opposite holds true in non‐crisis periods. The reason is that balance sheets and thus spending decisions are less affected by external shocks under fixed regimes. This result is obtained through several theoretical and empirical methodologies that are useful for identifying balance sheet effects in a non‐crisis setting. Simulations reveal a larger (smaller) output response under flexible regimes when these effects are included (excluded). Although the transmission of foreign interest rate shocks to domestic interest rates is stronger under fixed regimes, it appears the limited effects on balance sheets generate a more muted output response.
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bla:intfin:v:13:y:2010:i:2:p:223-256
Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1367-0271
Access Statistics for this article
International Finance is currently edited by Benn Steil
More articles in International Finance from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().