Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/39521
Authors: 
Chakrabarty, Debajyoti
Year of Publication: 
2002
Series/Report no.: 
ZEI working paper B 29A-2002
Abstract: 
We study the process of growth and business cycles in an open economy which has access to international ¯nancial markets. The ¯nancial market imperfection originates from costly state veri¯cation and a positive probability of default on loans. The degree of credit market imperfection is endogenously derived. The results show that developed economies are able to borrow on easier terms than emerging countries. The credit market imperfection may cause some economies to fall into a development trap if the initial endowment of capital is too low. The ¯nancial market frictions also generate interesting business cycle dynamics. Financial market imperfections help in replicating the empirical fact that output growth shows positive autocorrelation at short horizons. The model also predicts that a poorer economy will experience a more severe and persistent e®ect on investment and output due to an exogenous shock.
Subjects: 
Costly state verification
Credit markets
Growth
Business Cycles
JEL: 
G14
D82
G21
O16
Document Type: 
Working Paper

Files in This Item:
File
Size
495.48 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.