Working Papers

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

AUTHOR(s): Chang, Roberto , Fernandez, Andres , Gulan, Adam
PUBLISHED: August 2016
RELATED TOPICS: Macroeconomics


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.

Related Research by JEL Codes:
(or click here to find research by JEL Codes)
  • Equilibrium Unemployment during Financial Crises
    Working Papers
    IDB-WP-390 - February 2013

    Financial crises in both emerging and developed economies have been character- ized by large output drops and spikes in unemployment and interest rates. To account for these stylized facts this paper builds a business cycle model where financial and la- bor market frictions interact as occasionally binding borrowing constraints and search frictions. The model is calibrated to a Sudden Stop-prone e ... (View publication)

  • Interest Rates and Business Cycles in Emerging Economies: The Role of Financial Frictions
    Working Papers
    IDB-WP-339 - November 2012

    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 coun- tercyclical interest rate processes. This paper embeds a financial contract à la Bernanke et al. ... (View publication)

  • Sharing a Ride on the Commodities Roller Coaster: Common Factors in Business Cycles of Emerging Economies
    Working Papers
    IDB-WP-640 - December 2015

    Fluctuations in commodity prices are an important driver of business cycles in small emerging market economies (EMEs). This paper documents how these fluctuations correlate strongly with the business cycle in EMEs. A commodity sector is then embedded into a multi-country EMEs business cycle model where exogenous fluctuations in commodity prices follow a common dynamic factor structure and coe ... (View publication)

Hello, Welcome to the IDB!

Please join our mailing list by simply entering your email below.