El Embriague Financiero: Una Visión Alternativa de Amplificación Bancaria

Elías Albagli

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: This paper develops a model that explains the amplification of negative shocks faced by an economy through its banking system, but with a different grip as the standard financial accelerator theory. When a bank faces insolvency, it has incentives to continue sub-optimal projects in its portfolio, retarding or clutching the necessary process of creative destruction, which leads to sluggish economic performance. Considering three sectors, asymmetric information and agency problems, it is shown how the original magnitude of a generalized adverse shock can be amplified by the banking sector. The motivation of this study is provided by the current symptoms of the Japanese banking sector and the Chilean experience of the early 80´s debt crisis. These episodes show clear signals that validate the mechanisms identified by the theory, and suggest some measures to face crisis periods on a proper manner.

Date: 2003-03
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:207

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