Sector heterogeneity and credit market imperfections in emerging markets

Liliana Varela

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper shows that the impact of country interest rate shocks on emerging markets' economic activities can be associated with credit market imperfections affecting principally non-tradable activities. I present novel evidence documenting that tradable and non-tradable activities respond asymmetrically to changes in credit conditions in emerging markets. I show that country interest rate shocks are amplified through non-tradable activities, and that local credit substantially explains their output growth. Unlike the non-tradable sector, tradable activities are not significantly affected by changes in local credit conditions. To rationalize these findings, I introduce a small open economy model with heterogeneous access to international borrowing that accounts for the asymmetric response of tradable and non-tradable activities.

Keywords: emerging markets; financial frictions; interest rate shocks (search for similar items in EconPapers)
JEL-codes: E44 F34 F41 F43 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2017-02-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in Journal of International Money and Finance, 1, February, 2017, 70, pp. 433-451. ISSN: 0261-5606

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Related works:
Journal Article: Sector heterogeneity and credit market imperfections in emerging markets (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:102061

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