Contagion, Bank Lending Spreads, and Output Fluctuations

31 Pages Posted: 28 Nov 2001

See all articles by Pierre-Richard Agenor

Pierre-Richard Agenor

University of Manchester - School of Social Sciences

Joshua Aizenman

National Bureau of Economic Research (NBER)

Alexander W. Hoffmaister

International Monetary Fund (IMF) - Research Department

Multiple version iconThere are 2 versions of this paper

Date Written: June 2001

Abstract

A positive historical shock to external spreads can lead to an increase in domestic spreads and a reduction in the cyclical component of output. Shocks to external spreads immediately after the Mexican peso crisis had a sizable effect on movements in output and domestic interest rate spreads in Argentina.

Agénor, Aizenman, and Hoffmaister study how contagion affects bank lending spreads and fluctuations in output in Argentina. They analyze what determines bank lending spreads when verification and enforcement costs for loan contracts are high.

They present estimates of a vector autoregression model that relates bank lending spreads, the cyclical component of output, the real bank lending rate, and the spread in external interest rates.

Using generalized impulse response functions, they show that a positive historical shock to external spreads leads to an increase in domestic spreads and a reduction in the cyclical component of output.

Historical decompositions indicate that shocks to external spreads immediately after the Mexican peso crisis had a sizable effect on movements in output and domestic interest rate spreads in Argentina.

This paper - a product of Economic Policy and Poverty Reduction, World Bank Institute - is part of a larger effort in the institute to analyze the real effects of financial sector inefficiencies. The authors may be contacted at pagenor@worldbank.org or j.aizenman@dartmouth.edu.

JEL Classification: E44, F36, I31

Suggested Citation

Agenor, Pierre-Richard and Aizenman, Joshua and Hoffmaister, Alexander W., Contagion, Bank Lending Spreads, and Output Fluctuations (June 2001). UCSC Dept. of Economics Working Paper No. 497; World Bank Policy Research Working Paper No. 2186. Available at SSRN: https://ssrn.com/abstract=292251

Pierre-Richard Agenor

University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

Joshua Aizenman (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Alexander W. Hoffmaister

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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