Endogenous Borrowing Constraints and Stagnation in Latin America

Paulina Restrepo-Echavarria

No 2014-37, Working Papers from Federal Reserve Bank of St. Louis

Abstract: The Latin American debt crisis of the 1980's had a major and long lasting effect on per-capita consumption: its level in 2005 was not that different from that in 1980. This paper studies the long stagnation in per-capita consumption that followed the crisis, and its relationship with recessions and sovereign risk, using a small open economy real business cycle model with complete markets, endogenous borrowing limits (limited commitment), endogenous capital accumulation, and domestic productivity and international interest rate shocks. I find that the model does an excellent job at explaining the observed behavior of per-capita consumption and that both the productivity and international interest rate shocks are important. Furthermore, I show that the participation constraint in this kind of representative agent model can bind not only in good times but also in prolonged bad times.

Keywords: Consumption; Debt Crisis; Latin America; Limited Commitment (search for similar items in EconPapers)
JEL-codes: C61 E21 F41 F43 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2013-02-15
New Economics Papers: this item is included in nep-dge, nep-his, nep-lam and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Endogenous borrowing constraints and stagnation in Latin America (2019)
Working Paper: Endogenous Borrowing Constraints and Stagnation in Latin America (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2014-037

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DOI: 10.20955/wp.2014.037

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