NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Bond Finance, Bank Credit, and Aggregate Fluctuations in an Open Economy

Roberto Chang, Andrés Fernández, Adam Gulan

NBER Working Paper No. 22377
Issued in June 2016
NBER Program(s):International Finance and Macroeconomics

Corporate sectors in emerging markets have noticeably increased their reliance on foreign financing, presumably reflecting low global interest rates. The evidence also shows a rebalancing from bank loans towards bonds. To study these developments, we develop a dynamic open economy model where these modes of finance are determined endogenously. The model replicates the stylized facts following a drop in world interest rates; in particular, rebalancing towards bonds occurs because bank credit becomes relatively more expensive, reflecting the scarcity of bank equity. More generally, the model is suitable for studying interactions between modes of finance and the macroeconomy.

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Document Object Identifier (DOI): 10.3386/w22377

Published: Chang, Roberto & Fernández, Andrés & Gulan, Adam, 2017. "Bond finance, bank credit, and aggregate fluctuations in an open economy," Journal of Monetary Economics, Elsevier, vol. 85(C), pages 90-109. citation courtesy of

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