Please use this identifier to cite or link to this item:
Tornell, Aaron
Westermann, Frank
Year of Publication: 
Series/Report no.: 
CESifo Working Paper 960
In this paper we document three credit market imperfections prevalent in middle income countries that can help to explain boom-bust cycles, as well as other macroeconomic patterns observed at higher frequencies across these countries. These imperfections are: the existence of financing constraints that affect mainly the nontradables sector, currency mismatch and guarantees that cover lenders against systemic crises. In MICs T-sector firms have access to international capital markets, while most N-firms are bank-dependent and are financially constrained. Systemic guarantees generate incentives for borrowers to take on insolvency risk by denominating debt in foreign currency. This currency mismatch makes movements in the real exchange rate - the relative price between N and T goods - the driving element in the amplification of shocks.
Document Type: 
Working Paper

Files in This Item:

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