Modelling the Impact of the US Subprime Crisis onto the Mauritian Financial System via the Stock Market Channel

Abstract:     
This paper sheds light regarding the impact of credit crunch on the Mauritian economy via the stock market channel. The model comprises of four sectors, dichotomised into financial (insurance and the banking sectors) and the non-financial parts (corporates and households). The analysis shows that the extent to which distinct sectors are interlinked will ultimately determine the overall effect of the crisis. Indeed, important feedback effects are noted, let alone first round effects. In general, the analysis points out no major effects of the crisis via the stock market onto the real economy due to characteristics of households coupled with sound regulation established for banks. However, the extent of negative wealth effects borne by the five richest families in Mauritius will undeniably trail behind some financial casualities on the real sector.

Number of Pages in PDF File: 9

Keywords: Financial Stability, Stock market Channel, Households, Corporates, Banks, Insurance, Bank-based Financial System, Mauritius

JEL Classification: G01, G21, G2, H31, H32, N27

Accepted Paper Series