Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212226 
Year of Publication: 
2012
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 23/2012
Publisher: 
Bank of Finland, Helsinki
Abstract: 
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. We embed a financial contract àla Bernanke et al. (1999) into a standard small open economy business cycle model that endogenously delivers countercyclical interest rates. We then take the model to the data. For this purpose we build a novel panel dataset for emerging economies that includes financial data, namely sovereign and corporate interest rates as well as leverage. We show 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.
Persistent Identifier of the first edition: 
ISBN: 
978-952-462-810-5
Document Type: 
Working Paper

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