EconPapers    
Economics at your fingertips  
 

Domestic Financial Participation and Financial Policies in Emerging Economies

Alan Finkelstein-Shapiro and Victoria Nuguer
Additional contact information
Alan Finkelstein-Shapiro: Tufts University

Authors registered in the RePEc Author Service: Alan Finkelstein Shapiro ()

No 1479, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: The Global Financial Crisis (GFC) of 2008-2009 highlighted the role of the banking system as an important propagation mechanism of U.S. financial shocks to emerging economies (EMEs). Recent evidence shows that compared to advanced economies (AEs), emerging economies (EMEs) exhibit considerably lower levels of firm participation in the domestic banking system, leading several EMEs to promote greater firm domestic financial participation. What are the implications of this greater firm participation in the banking system for the response to external financial shocks, such as those experienced by EMEs during the GFC? How should cyclical financial policies adapt to increasingly greater levels of firm domestic financial participation? We build a two-country RBC model with banking frictions, endogenous firm entry, and limited domestic financial participation by firms. Using the model, we show that greater firm financial participation in EMEs limits the effect of adverse external financial shocks on EME financial and macro aggregates, with endogenous firm entry playing a critical role in the volatility-reducing effects of greater firm financial participation in EMEs. We provide empirical evidence for EMEs that broadly supports our model findings and mechanisms. More broadly, our findings suggest that cyclical financial policies aimed at stabilizing credit market fluctuations may need to adapt to the average degree of domestic financial participation.

Date: 2019
New Economics Papers: this item is included in nep-dge and nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://economicdynamics.org/meetpapers/2019/paper_1479.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:red:sed019:1479

Access Statistics for this paper

More papers in 2019 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

 
Page updated 2021-04-08
Handle: RePEc:red:sed019:1479