NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Decoupling and Recoupling

Anton Korinek, Agustín Roitman, Carlos A. Végh

NBER Working Paper No. 15907
Issued in April 2010
NBER Program(s):   IFM

We develop a stylized model that captures the phenomena of decoupling and recoupling in an environment where heterogeneous entrepreneurial sectors face financial constraints in their relationship with a common set of lenders. In response to adverse shocks, a financially constrained sector must reduce its borrowing and cut down on production. In particular, as the constrained sector absorbs less and less capital, the real interest rate in the economy declines. Other sectors that compete for the same inputs (including capital) thus experience lower costs, which boosts investment, output, and profits, reflecting the phenomenon of "decoupling." As long as the shock is small, the entrepreneurial sector repays what is owed and the lenders' ability to supply funds is unaffected. For large shocks, however, the constrained sector is no longer able to honor its debts in full and lenders experience losses that erode their lending base. This induces them to cut their supply of credit to the rest of the economy, which reduces output and profit for all other entrepreneurial sectors, capturing the phenomenon of "recoupling" or contagion.

download in pdf format
   (171 K)

email paper

This paper is available as PDF (171 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w15907

Published: Anton Korinek & Agustin Roitman & Carlos A. Végh, 2010. "Decoupling and Recoupling," American Economic Review, American Economic Association, vol. 100(2), pages 393-97, May.

Users who downloaded this paper also downloaded these:
Dooley and Hutchison w15120 Transmission of the U.S. Subprime Crisis to Emerging Markets: Evidence on the Decoupling-Recoupling Hypothesis
Kose, Otrok, and Prasad w14292 Global Business Cycles: Convergence or Decoupling?
Jeanne and Korinek w15927 Excessive Volatility in Capital Flows: A Pigouvian Taxation Approach
Taylor and Williams w15908 Simple and Robust Rules for Monetary Policy
Gali w15871 Monetary Policy and Unemployment
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us