Boom-Bust Cycles in Middle Income Countries: Facts and Explanation

Aaron Tornell and Frank Westermann

No 9219, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper we characterize empirically the comovements of macro variables typically observed in middle income countries, as well as the boom-bust cycle' that has been observed during the last two decades. We find that many countries that have liberalized their financial markets, have witnessed the development of lending booms. Most of the time the boom gradually decelerates. But sometimes the boom ends in twin currency and banking crises, and is followed by a protracted credit crunch that outlives a short-lived recession. We also find that during lending booms there is a real appreciation and the nontradables (N) sector grows faster than the tradables (T) sector. Meanwhile, the opposite is true in the aftermath of crisis. We argue that these comovements are generated by the interaction of two characteristics of financing typical of middle income countries: risky currency mismatch and asymmetric financing opportunities across the N- and T-sectors.

JEL-codes: E32 E44 (search for similar items in EconPapers)
Date: 2002-09
New Economics Papers: this item is included in nep-dev and nep-ifn
Note: IFM
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Citations: View citations in EconPapers (137)

Published as Aaron Tornell & Frank Westermann, 2002. "Boom-Bust Cycles in Middle Income Countries: Facts and Explanation," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 111-155.

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Journal Article: Boom-Bust Cycles in Middle Income Countries: Facts and Explanation (2002)
Working Paper: Boom-Bust Cycles in Middle Income Countries: Facts and Explanation (2002)
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