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Sudden Stops, Financial Crises, and Leverage

The American economic review, 2010-12, Vol.100 (5), p.1941-1966 [Peer Reviewed Journal]

Copyright © 2010 American Economic Association ;Copyright American Economic Association Dec 2010 ;ISSN: 0002-8282 ;EISSN: 1944-7981 ;DOI: 10.1257/aer.100.5.1941 ;CODEN: AENRAA

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Title:
Sudden Stops, Financial Crises, and Leverage
Author: Mendoza, Enrique G.
Subjects: Asset valuation ; Book value ; Business cycles ; Capital investments ; Collateral ; Consumption ; Credit ; Deflation ; Economic crises ; Economic crisis ; Economic fluctuations ; Economic models ; Economic shock ; Economic theory ; Emerging markets ; Equilibrium ; Financial crisis ; Financial leverage ; GDP ; Gross Domestic Product ; International economics ; Leverage ; Macroeconomics ; Recessions ; Studies ; Trends ; Working capital
Is Part Of: The American economic review, 2010-12, Vol.100 (5), p.1941-1966
Description: Financial crashes were followed by deep recessions in the Sudden Stops of emerging economies. An equilibrium business cycle model with a collateral constraint explains this phenomenon as a result of the amplification and asymmetry that the constraint induces in the responses of macro-aggregates to shocks. Leverage rises during expansions, and when it rises enough it triggers the constraint, causing a Fisherian deflation that reduces credit and the price and quantity of collateral assets. Output and factor allocations fall because access to working capital financing is also reduced. Precautionary saving makes Sudden Stops low probability events nested within normal cycles, as observed in the data.
Publisher: Nashville: American Economic Association
Language: English
Identifier: ISSN: 0002-8282
EISSN: 1944-7981
DOI: 10.1257/aer.100.5.1941
CODEN: AENRAA
Source: ProQuest Central

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Sudden Stops, Financial Crises, and Leverage

Copyright © 2010 American Economic Association ;Copyright American Economic Association Dec 2010 ;ISSN: 0002-8282 ;EISSN: 1944-7981 ;DOI: 10.1257/aer.100.5.1941 ;CODEN: AENRAA

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