Financial Intermediation, Capital Flow and Macro Economy: An Effective Demand Model for an Emerging Market Economy

Rilina Basu () and Ranjanendra Narayan Nag ()
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Rilina Basu: St. Xavier’s College (Autonomous), Postal: Department of Economics, St. Xavier’s College (Autonomous),, Kolkata, Flat - 5A, Dhanshree Towers, 70, Diamond Harbour Road, Kolkata - 700023, West Bengal,, India
Ranjanendra Narayan Nag: St. Xavier’s College (Autonomous), Postal: Department of Economics, St. Xavier’s College (Autonomous), Kolkata; Address for, correspondence: P-36, CIT Scheme VI M(S), Kolkata - 700054, West Bengal, India

Journal of Economic Integration, 2010, vol. 25, 571-591

Abstract:

This paper examines two issues that are central to the macroeconomic implications of large external shock for an emerging market economy. First, the paper examines how capital reversal and credit squeeze can reduce aggregate demand that lead to cascading contraction in employment. Secondly, the paper investigates alternative policy options, when an economy is in the depths of financial crisis. What we chose for analytical purpose is an effective model of Blinder-Bernanke type which is modified in several directions so as to examine how financial shocks produce macroeconomic outcomes in a large class of emerging market economies.

Keywords: Effective Demand; Financial Liberalization; Sudden Stops In Capital Flow; Credit Crunch (search for similar items in EconPapers)
JEL-codes: E44 E51 F41 G21 (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0516

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