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Credit market imperfections, labor markets, and leverage dynamics in emerging economies

Alan Finkelstein Shapiro () and Andres Gonzalez ()

Journal of International Money and Finance, 2017, vol. 78, issue C, 44-63

Abstract: Emerging economies (EMEs) have different credit and labor market structures relative to advanced economies. We document that economies with larger self-employment shares tend to exhibit less countercyclical leverage dynamics. We build a model where formal credit markets, input credit relationships, and the structure of labor markets interact that (1) captures a comprehensive set of EME business cycle regularities and (2) rationalizes our new fact. The interaction between firms’ net worth, interfirm input credit, and self-employment underlying our framework is critical for explaining our fact and is supported by the data.

Keywords: Emerging economy business cycles; Financial frictions; Labor search frictions; Self-employment; Credit policies (search for similar items in EconPapers)
JEL-codes: E24 E32 E44 F41 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1016/j.jimonfin.2017.08.001

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