Economics at your fingertips  

Interest rates and business cycles in emerging economies: the role of financial frictions

Andrés Fernández and Adam Gulan ()

No 23/2012, Research Discussion Papers from Bank of Finland

Abstract: Countercyclical country interest rates have been shown to be both a distinctive characteristic and an important driving force of business cycles in emerging market economies. In order to account for this, most business cycle models of emerging market economies have relied on ad hoc and exogenous countercyclical interest rate processes. We embed a financial contract àla Bernanke et al. (1999) into a standard small open economy business cycle model that endogenously delivers countercyclical interest rates. We then take the model to the data. For this purpose we build a novel panel dataset for emerging economies that includes financial data, namely sovereign and corporate interest rates as well as leverage. We show that the model accounts well not only for countercyclical interest rates, but also for other stylized facts of emerging economies' business cycles, including the dynamics of leverage.

Date: 2012-06-18
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

Published in Published in American Economic Journal: Macroeconomics, Volume 7, Issue 3, 2015: 153-188 ;

Downloads: (external link) (application/pdf)

Related works:
Working Paper: Interest Rates and Business Cycles in Emerging Economies: The Role of Financial Frictions (2012) Downloads
Working Paper: Interest Rates and Business Cycles in Emerging Economies.The Role of Financial Frictions (2012) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Research Discussion Papers from Bank of Finland Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland. Contact information at EDIRC.
Bibliographic data for series maintained by Minna Nyman ().

Page updated 2022-09-24
Handle: RePEc:bof:bofrdp:2012_023