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Revisiting Overborrowing and its Policy Implications

Gianluca Benigno, Huigang Chen, Christopher Otrok (), Alessandro Rebucci () and Eric Young ()

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: This paper analyzes quantitatively the extent to which there is overborrowing (i.e., inefficient borrowing) in a business cycle model for emerging market economies with production and an occasionally binding credit constraint. The main finding of the analysis is that overborrowing is not a robust feature of this class of model economies: it depends on the structure of the economy and its parametrization. Specifically, we find underborrowing in a production economy with our baseline calibration, but overborrowing with more impatient agents and more volatile shocks. Endowment economies display overborrowing regardless of parameter values, but they do not allow for policy intervention when the constraint binds (in crisis times). Quantitatively, the welfare gains from implementing the constrained efficient allocation are always larger near crisis times than in normal

New Economics Papers: this item is included in nep-cba and nep-dge
Date: 2010-06
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Related works:
Chapter: Revisiting Overborrowing and its Policy Implications (2011) Downloads
Working Paper: Revisiting Overborrowing and Its Policy Implications (2011) Downloads
Working Paper: Revisiting Overborrowing and Its Policy Implications (2010) Downloads
Working Paper: Revisiting Overborrowing and its Policy Implications (2010) Downloads
Working Paper: Revisiting Overborrowing and its Policy Implications (2010) Downloads
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