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Banks and Monetary Shocks in Emerging Markets; How Far Can We Go with the "Credit View"?

Luis Catão () and Sergio L. Rodriguez

No 2000/068, IMF Working Papers from International Monetary Fund

Abstract: This paper examines the propagation of monetary shocks in a two-good optimizing macromodel where domestic banking activity is costly and the non-tradable sector is highly dependent on domestic bank credit, as in most emerging market economies. The model develops the Bernanke-Blinder “credit view” of the monetary transmission mechanism along classical lines, with no Keynesian rigidities being imposed and the only sources of “imperfection” arising from deposit and credit-in-advance constraints. Using numerical simulations, we show that such a relatively simple model goes a long way toward explaining some key “stylized facts” of recent financial crises.

Keywords: Banks; Bank credit; Emerging markets; Interest rates; Monetary policy; interest rate spreads, banking, bond, reserve requirements, bank deposits (search for similar items in EconPapers)
Pages: 37
Date: 2000-03-01
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Handle: RePEc:imf:imfwpa:2000/068