Crises and growth: A re-evaluation

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Rancière, Romain; Tornell, Aaron; Westermann, Frank. Crises and growth: A re-evaluation. 2002
http://hdl.handle.net/10230/464
To cite or link this document: http://hdl.handle.net/10230/464
dc.contributor.author Rancière, Romain
dc.contributor.author Tornell, Aaron
dc.contributor.author Westermann, Frank
dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
dc.date.issued 2002-05-01
dc.identifier.uri http://hdl.handle.net/10230/464
dc.description.abstract We address the question of whether growth and welfare can be higher in crisis prone economies. First, we show that there is a robust empirical link between per-capita GDP growth and negative skewness of credit growth across countries with active financial markets. That is, countries that have experienced occasional crises have grown on average faster than countries with smooth credit conditions. We then present a two-sector endogenous growth model in which financial crises can occur, and analyze the relationship between financial fragility and growth. The underlying credit market imperfections generate borrowing constraints, bottlenecks and low growth. We show that under certain conditions endogenous real exchange rate risk arises and firms find it optimal to take on credit risk in the form of currency mismatch. Along such a risky path average growth is higher, but self-fulfilling crises occur occasionally. Furthermore, we establish conditions under which the adoption of credit risk is welfare improving and brings the allocation nearer to the Pareto optimal level. The design of the model is motivated by several features of recent crises: credit risk in the form of foreign currency denominated debt; costly crises that generate firesales and widespread bankruptcies; and asymmetric sectorial responses, where the nontradables sector falls more than the tradables sector in the wake of crises.
dc.language.iso eng
dc.relation.ispartofseries Economics and Business Working Papers Series; 852
dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.title Crises and growth: A re-evaluation
dc.type info:eu-repo/semantics/workingPaper
dc.date.modified 2014-06-03T07:14:14Z
dc.subject.keyword Macroeconomics and International Economics
dc.subject.keyword bailouts
dc.subject.keyword bottlenecks
dc.subject.keyword credit market imperfections
dc.subject.keyword currency mismatch
dc.subject.keyword financial fragility
dc.subject.keyword macroeconomic voliatility
dc.rights.accessRights info:eu-repo/semantics/openAccess


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