 Do NBFCs propagate real shocks?Saurabh Ghosh and Debojyoti Mazumder Journal of Asian Economics, 2023, vol. 85, issue C Abstract: Notwithstanding a smaller share of total loans vis-à-vis commercial banks, we investigate a possible role of Non-banking financial companies (NBFCs) in propagating a real shock to the rest of the economy. Our two-sector model captures emerging economy characteristics such as NBFC borrowings from commercial banks, heterogeneities in financial constraints, and labour market friction faced by firms. Our theoretical and simulation results, using Indian parameters, indicate that an idiosyncratic shock (i.e., higher realization of the failed firms) and a sectoral productivity shock (in the sector financed by NBFCs) increase the interest rate charged by the banks, and the unemployment rate while reducing the real wages and per capita capital formation. However, the reverse happens given a structural shock, assumed as an increase in the average number of failed firms. Early detection of such shocks and quick policy intervention are required to provide a cushion for capital formation and job creation. Keywords: NBFC; Bank-NBFC interaction; Search and matching unemployment (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:85:y:2023:i:c:s1049007823000106 DOI: 10.1016/j.asieco.2023.101590 Access Statistics for this article Journal of Asian Economics is currently edited by C. Wiemer More articles in Journal of Asian Economics from Elsevier |
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