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Lending constraints, real estate prices and business cycles in emerging economies

Raoul Minetti and Tao Peng

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 12, 2397-2416

Abstract: We investigate a small open economy with constraints in both the domestic and the international credit market. The informational opaqueness of the domestic market hinders foreign lenders' activity, so that entrepreneurs face looser borrowing constraints vis-à-vis domestic financiers. However, limited capitalization constrains domestic lenders. Calibrating the model to data from Argentina, we find that the interaction between lending and borrowing constraints is a channel through which real interest rate shocks generate fluctuations in output, real estate prices and consumption. External financial liberalization increases volatility and affects welfare more than domestic liberalization but also mitigates the destabilizing impact of domestic deregulation.

Keywords: Lending constraints; Real estate prices; Business fluctuations (search for similar items in EconPapers)
Date: 2013
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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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