Creditor Protection and Financial Cycles

24 Pages Posted: 21 Apr 2011

See all articles by Arturo José Galindo

Arturo José Galindo

Inter-American Development Bank

Alejandro Micco

University of Chile

Date Written: April 2001

Abstract

We develop a model in which the elasticity of credit to exogenous shocks depends on creditor rights regulations. We show that an increase in creditor protection reduces the elasticity of credit supply to exogenous shocks, and hence the amplitude of the credit cycle. Using an extended set of a measure of creditor rights protection in the spirit of La Porta et al. (1998), we find that stricter creditor rights regulations not only increase the breadth of the credit market but also reduce the volatility of the credit cycle.

Suggested Citation

Galindo, Arturo José and Micco, Alejandro, Creditor Protection and Financial Cycles (April 2001). IDB Working Paper No. 372, Available at SSRN: https://ssrn.com/abstract=1817242 or http://dx.doi.org/10.2139/ssrn.1817242

Arturo José Galindo (Contact Author)

Inter-American Development Bank ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Alejandro Micco

University of Chile ( email )

Pío Nono Nº1, Providencia
Santiago, R. Metropolitana 7520421
Chile

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