SciELO - Scientific Electronic Library Online

 
vol.35 special issue 82Tax policy and the macroeconomy: Measurement, identification, and non-linearities, author indexsubject indexarticles search
Home Pagealphabetic serial listing  

Services on Demand

Journal

Article

Indicators

Related links

  • On index processCited by Google
  • Have no similar articlesSimilars in SciELO
  • On index processSimilars in Google

Share


Ensayos sobre POLÍTICA ECONÓMICA

Print version ISSN 0120-4483

Abstract

SCHMITT-GROHE, Stephanie  and  URIBE, Martín. Adjustment to small, large, and sunspot shocks in open economies with stock collateral constraints,. Ens. polit. econ. [online]. 2017, vol.35, n.spe82, pp.2-9. ISSN 0120-4483.  https://doi.org/10.1016/j.espe.2016.12.003.

This paper characterizes analytically the adjustment of an open economy with a stock collateral constraint to fundamental and non-fundamental shocks. In the model, external borrowing is limited by the value of physical capital. Three results are established: (1) Adjustment to external shocks is nonlinear. In response to small negative output shocks, the economy adjusts as prescribed by the intertemporal approach to the current account, with increases in debt, deficits in the trade and current account balances, and no significant movement in the price of collateral. By contrast, in response to large negative output shocks the economy experiences a sudden stop with debt deleveraging, trade and current account reversals, and a Fisherian deflation of asset prices. (2) Generically, weak fundamentals (low output and high external debt) give rise to multiple equilibria. (3) In this case, the economy is prone to self-fulfilling sudden stops driven by downward revisions of expectations about the value of collateral.

JEL classification: F41.

Keywords : Collateral constraints; Multiple equilibria; Self-fulfilling financial crises; Sudden stops.

        · abstract in Spanish     · text in English     · English ( pdf )