Banks and Monetary Shocks in Emerging Markets: How Far Can We Go with the "Credit View"?

March 1, 2000

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Luis Catão, and Sergio L. Rodriguez Banks and Monetary Shocks in Emerging Markets: How Far Can We Go with the "Credit View"?, (USA: International Monetary Fund, 2000) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper examines the propagation of monetary shocks in a two-good optimizing macromodel where domestic banking activity is costly and the non-tradable sector is highly dependent on domestic bank credit, as in most emerging market economies. The model develops the Bernanke-Blinder “credit view” of the monetary transmission mechanism along classical lines, with no Keynesian rigidities being imposed and the only sources of “imperfection” arising from deposit and credit-in-advance constraints. Using numerical simulations, we show that such a relatively simple model goes a long way toward explaining some key “stylized facts” of recent financial crises.

Subject: Bank credit, Banking, Consumption, Credit, Emerging and frontier financial markets, Employment, Financial markets, Labor, Money, National accounts

Keywords: Asia and Pacific, Bank credit, Consumption, Credit, Demand curve, Emerging and frontier financial markets, Emerging markets, Employment, Flow constraint, Interest rate, Interest rate shock, Interest rate spreads, Monetary policy, Open economy, Present discounted value, Trade balance, Working capital, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2000/068
Stock No:

WPIEA0682000
ISBN:

9781451848984
ISSN:

1018-5941

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