Financial Sector Inefficiencies and Coordinate Failures: Implications for Crisis Management

Pierre-Richard Agénor and Joshua Aizenman

No 7446, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper analyzes the implication of inefficient financial intermediation for crisis management in a country where firms are highly-indebted. The analysis is based on a model in which firms rely on bank credit to finance their working capital needs and lenders face high state verification and enforcement costs of loan contracts. The analysis shows that higher contract enforcement and verification costs, lower expected productivity, or higher volatility, may shift the economy to the wrong side of the debt Laffer curve, with potentially sizable employment and output losses. The main implication of this analysis for the current policy debate on crisis management is East Asia is that dept reduction, in addition to debt rescheduling, may be required as part of the process of reducing financial sector inefficiencies.

JEL-codes: E44 F36 (search for similar items in EconPapers)
Date: 1999-12
New Economics Papers: this item is included in nep-fin and nep-ifn
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.nber.org/papers/w7446.pdf (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:nbr:nberwo:7446

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w7446

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().