Bond%20Finance%2C%20Bank%20Credit%2C%20and%20Aggregate%0D%0AFluctuations%20in%20an%20Open%20Economy

Working Papers

Bond Finance, Bank Credit, and Aggregate Fluctuations in an Open Economy


CODE: IDB-WP-720
AUTHOR(s): Chang, Roberto , Fernandez, Andres , Gulan, Adam
PUBLISHED: August 2016
LANGUAGE: English
RELATED TOPICS: Macroeconomics
DOWNLOAD FILE IN: English

Abstract:

Corporate sectors in emerging markets have noticeably increased their reliance on foreign financing, presumably reflecting low global interest rates. The evidence also shows a rebalancing from bank loans towards bonds. To study these developments, this paper develops a dynamic open economy model where these modes of finance are determined endogenously. The model replicates the stylized facts following a drop in world interest rates; in particular, rebalancing towards bonds occurs because bank credit becomes relatively more expensive, reflecting the scarcity of bank equity. More generally, the model is suitable for studying interactions between modes of finance and the macroeconomy.

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