Hostname: page-component-586b7cd67f-2plfb Total loading time: 0 Render date: 2024-11-22T16:03:40.571Z Has data issue: false hasContentIssue false
  • English
  • Français

SUDDEN STOPS, OUTPUT DROPS, AND CREDIT COLLAPSES

Published online by Cambridge University Press:  28 March 2013

Jihad C. Dagher
Jihad C. Dagher*
Affiliation:
International Monetary Fund
*
Address correspondence to: Jihad C. Dagher, International Monetary Fund, 1900 Pennsylvania Ave., Washington, DC 20234, USA; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper proposes a tractable sudden stop model to explain the main patterns in firm-level data from a sample of Southeast Asian firms during the Asian crisis. The model incorporates trend shocks and financial frictions, features that have so far been used separately in the literature on emerging markets. A negative shock to trend productivity growth can account, in our model, for the drop in output and its swift recovery together with the sizable and persistent downward adjustment in firms' Tobin's Q and debt levels. These patterns are broadly shared by most sudden stop episodes as documented in the literature. Trend shocks can also generate, in our model, strong leverage effects in line with the firm-level data and other observations from the literature.

Keywords

Sudden StopsFinancial FrictionsTrend ShocksCreditless RecoveryLeverage
Type
Articles
Information
Macroeconomic Dynamics , Volume 18 , Issue 4 , June 2014 , pp. 812 - 837
Copyright
Copyright © Cambridge University Press 2013 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Aguiar, M. and Gopinath, G. (2007) Emerging market business cycles: The cycle is the trend. Journal of Political Economy 115 (1), 69–102.CrossRefGoogle Scholar
Allen, F., Bernardo, A., and Welch, I. (2000) A theory of dividends based on tax clienteles. Journal of Finance 55, 2499–2536.CrossRefGoogle Scholar
Altínkílíç, Oya and Hansen, Robert S. (2000). Are there economies of scale in underwriter fees? Evidence of rising external financing costs. Review of Financial Studies 13, 191–218.CrossRefGoogle Scholar
Barro, R. (2001) Economic Growth in East Asia before and after the Financial Crisis. NBER working paper 8330.CrossRefGoogle Scholar
Caballero, R. and Krishnamurthy, (2001) International and domestic collateral constraints in a model of emerging market crises. Journal of Monetary Economics 48 (3), 513–548.CrossRefGoogle Scholar
Calvo, G.A., Izquierdo, A., and Talvi, E. (2006) Sudden stops and phoenix miracles in emerging markets. American Economic Review Papers and Proceedings 96 (2), 405–410.CrossRefGoogle Scholar
Cerra, V. and Saxena, S. (2008) Growth dynamics: The myth of economic recovery. American Economic Review 98 (1), 439–457.CrossRefGoogle Scholar
Chang, R., Fernandez, A. (2010) On the Sources of Aggregate Fluctuations in Emerging Economies. NBER working paper 15938.CrossRefGoogle Scholar
Chari, V.V., Kehoe, P., and McGratten, E. (2005) Sudden Stops and Output Drops. Staff report 353, Federal Reserve Bank of Minneapolis.CrossRefGoogle Scholar
Chen, Hsuan-Chi and Ritter, Jay R. (2000) The seven percent solution. The Journal of Finance 55 (3), 1105–1131.CrossRefGoogle Scholar
Christiano, L., Motto, R., and Rostagno, M. (2003) The Great Depression and the Friedman–Schwartz hypothesis. Journal of Money, Credit and Banking 35 (6), 1119–1197.CrossRefGoogle Scholar
Claessens, S., Djankov, S., and Xu, L.C. (2000) Corporate performance in the East Asian financial crisis. World Bank Research Observer 15 (1), 23–46.CrossRefGoogle Scholar
Cole, H.L. and Ohanian, L.E. (2004) New Deal policies and the persistence of the Great Depression: A general equilibrium analysis. Journal of Political Economy 112 (4), 779–816.CrossRefGoogle Scholar
Cooper, R. and Ejarque, J. (2003) Financial frictions and investment: Requiem in Q. Review of Economic Dynamics 6, 710–728.CrossRefGoogle Scholar
García-Cicco, J., Pancrazzi, R., and Uribe, M. (2010) Real business cycles in emerging countries? American Economic Review 100 (5), 2510–2531.CrossRefGoogle Scholar
Guttman, I., Kadan, O., and Kandel, E. (2006) A rational expectations theory of kinks in financial reporting. Accounting Review 81, 811–848.CrossRefGoogle Scholar
Hennessy, C.A. and Whited, T.M. (2007) How costly is external financing? Evidence from a structural estimation. Journal of Finance 4, 1706–1745.Google Scholar
Jermann, U. and Quadrini, V. (2006) Financial Innovations and Macroeconomic Volatility. NBER working paper N12308.CrossRefGoogle Scholar
Jermann, U. and Quadrini, V. (2012) Macroeconomic effects of financial shocks. American Economic Review 102 (1), 238–271.CrossRefGoogle Scholar
Liberti, K. and Mian, A. (2010) Collateral spread and financial development. Journal of Finance 65 (1), 147–177.CrossRefGoogle Scholar
Lintner, J. (1956) Distribution of incomes of corporations among dividends, retained earnings, and taxes. American Economic Review 46, 97–113.Google Scholar
Mendoza, E.G. (2010) Sudden stops, financial crises and leverage. American Economic Review 100 (5), 1941–1966.CrossRefGoogle Scholar
Miller, H.M. and Rock, K. (1985) Dividend policy under asymmetric information. Journal of Finance 40, 1031–1051.CrossRefGoogle Scholar
Mitton, T. (2002) A cross-firm analysis of the impact of corporate governance on the East Asian financial crisis. Journal of Financial Economics 64, 215–241.CrossRefGoogle Scholar
Paulson, A. and Townsend, R. (2005) Financial constraints and entrepreneurship: Evidence from the Thai financial crisis. Economic Perspectives, Federal Reserve Bank of Chicago 29 (3), 34–48.Google Scholar
Schmitt-Grohe, S. and Uribe, M. (2003) Closing small open economies. Journal of International Economics 61, 163–185.CrossRefGoogle Scholar
Yue, V. (2010) Sovereign default and debt renegotiation. Journal of International Economics 80 (2), 176–187.CrossRefGoogle Scholar