Larger crises, slower recoveries: the asymmetric effects of financial frictions

Guillermo Ordonez

No 429, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: It is well known that movements in lending rates are asymmetric; they rise quickly and sharply, but fall slowly and gradually. Not known is the fact that the asymmetry is stronger the less developed a country's financial system is. This new fact is here documented and explained in a model with an endogenous flow of information about economic conditions. The stronger asymmetry in less developed countries stems from their greater financial system frictions, such as monitoring and bankruptcy costs, which first magnify jumps of lending rates and then delay their recoveries by restricting the generation of information after the crisis. A quantitative exploration of the model shows the data are consistent with this explanation.

Keywords: Developing countries; Financial crises (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-mac and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.minneapolisfed.org/research/SR/SR429.pdf
http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=4239 (application/pdf)

Related works:
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: https://EconPapers.repec.org/RePEc:fip:fedmsr:429

Access Statistics for this paper

More papers in Staff Report from Federal Reserve Bank of Minneapolis Contact information at EDIRC.
Bibliographic data for series maintained by Kate Hansel ().