Growth and business cycles with imperfect credit markets

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ZEI Working Paper ; No. B 29A-2002

Classification and Topics

• Classification: Wirtschaft ; Information and Market Efficiency; Event Studies; Insider Trading ; Asymmetric and Private Information; Mechanism Design ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
• Subject: Costly state verification ; Credit markets ; Growth ; Business Cycles

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Chakrabarty, Debajyoti
• Event: Veröffentlichung
• (who): Rheinische Friedrich-Wilhelms-Universität Bonn, Zentrum für Europäische Integrationsforschung (ZEI)
• (where): Bonn
• (when): 2002

Further information

• Handle: http://hdl.handle.net/10419/39521
• Last update: 10.03.2025, 11:41 AM CET