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Sector heterogeneity and credit market imperfections in emerging markets

Varela, Liliana (2017) Sector heterogeneity and credit market imperfections in emerging markets. Journal of International Money and Finance, 70. pp. 433-451. ISSN 0261-5606

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Identification Number: 10.1016/j.jimonfin.2016.09.006

Abstract

This paper shows that the impact of country interest rate shocks on emerging markets' economic activities can be associated with credit market imperfections affecting principally non-tradable activities. I present novel evidence documenting that tradable and non-tradable activities respond asymmetrically to changes in credit conditions in emerging markets. I show that country interest rate shocks are amplified through non-tradable activities, and that local credit substantially explains their output growth. Unlike the non-tradable sector, tradable activities are not significantly affected by changes in local credit conditions. To rationalize these findings, I introduce a small open economy model with heterogeneous access to international borrowing that accounts for the asymmetric response of tradable and non-tradable activities.

Item Type: Article
Official URL: https://www.sciencedirect.com/science/journal/0261...
Additional Information: © 2017 Elsevier
Divisions: Finance
Subjects: H Social Sciences > HG Finance
JEL classification: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
F - International Economics > F3 - International Finance > F34 - International Lending and Debt Problems
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies
Date Deposited: 11 Oct 2019 13:21
Last Modified: 20 Nov 2019 12:43
URI: http://eprints.lse.ac.uk/id/eprint/102061

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