 Business cycle implications of rising household credit market participation in emerging countriesZulma Barrail Journal of Economic Dynamics and Control, 2020, vol. 116, issue C Abstract: A small open emerging-economy model is extended with a household sector financial constraint to investigate business cycle implications of a rise in household access and use of financial services. Estimating the model on Mexican data and consistent with empirical findings, this paper finds that a rise in household credit market participation: (1) yields larger aggregate consumption volatility and (2) amplifies the effects of shocks in the domestic economy, particularly those transmitted through the interest rate channel. The estimated model also highlights that: (3) the lesser financial frictions are, the lower is the increase of consumption growth and trade balance volatility driven by a rise in household credit market participation and (4) trend productivity shocks become a more relevant source of business cycle fluctuations. Finally, standard measures of predictive accuracy suggest that the extended model outperforms the baseline emerging market model. Keywords: Limited asset markets participation; Rule-of-thumb consumers; Aggregate fluctuations; RBC model; Small open economy; Emerging markets (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:dyncon:v:116:y:2020:i:c:s0165188920300853 DOI: 10.1016/j.jedc.2020.103917 Access Statistics for this article Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok More articles in Journal of Economic Dynamics and Control from Elsevier |
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