Interest Rates and Business Cycles in Emerging Economies: The Role of Financial Frictions
Andrés Fernández Martin () and
Adam Gulan ()
Authors registered in the RePEc Author Service: Carmen Pages
No 4129, IDB Publications (Working Papers) from Inter-American Development Bank
Countercyclical country interest rates have been shown to be both a distinctive characteristic and an important driving force of business cycles in emerging market economies. In order to account for this, most business cycle models of emerging market economies have relied on ad hoc and exogenous countercyclical interest rate processes. This paper embeds a financial contract à la Bernanke et al. (1999) in a standard small open economy business cycle model that endogenously delivers countercyclical interest rates. The model is then applied to the data, drawn from a novel panel dataset for emerging economies that includes financial data, namely sovereign and corporate interest rates as well as leverage. It is shown that the model accounts well not only for countercyclical interest rates, but also for other stylized facts of emerging economies` business cycles, including the dynamics of leverage.
Keywords: Business cycle models; Emerging economies; Financial frictions (search for similar items in EconPapers)
References: Add references at CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed
Downloads: (external link)
https://publications.iadb.org/publications/english ... ancial-Frictions.pdf (application/pdf)
Working Paper: Interest rates and business cycles in emerging economies: the role of financial frictions (2012)
Working Paper: Interest Rates and Business Cycles in Emerging Economies.The Role of Financial Frictions (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:4129
Access Statistics for this paper
More papers in IDB Publications (Working Papers) from Inter-American Development Bank Contact information at EDIRC.
Bibliographic data for series maintained by Felipe Herrera Library ().