TY  - JOUR
AU  - Edwards,Sebastian
AU  - Vegh,Carlos A.
TI  - Banks and Macroeconomics Disturbances under Predetermined Exchange Rates
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5977
PY  - 1997
Y2  - March 1997
UR  - http://www.nber.org/papers/w5977
L1  - http://www.nber.org/papers/w5977.pdf
N1  - Author contact info:
Sebastian Edwards
UCLA Anderson Graduate School of Business
110 Westwood Plaza, Suite C508
Box 951481
Los Angeles, CA 90095-1481
Tel: 310/206-6797
Fax: 310/206-5825
E-Mail: sebastian.edwards@anderson.ucla.edu

Carlos A. Vegh
Department of Economics
Tydings Hall, Office 4118G
University of Maryland
College Park, MD 20742-7211
Tel: 301-405-3546
Fax: 301-405-3542
E-Mail: vegh@econ.bsos.umd.edu
AB  - As the recent Mexican crisis vividly illustrates, Latin American countries often go through boom-bust cycles caused by both domestic policies and external shocks.  Such cycles are typically magnified by weak banking systems which intermediate large capital inflows.  This paper develops a simple optimizing model to analyze how the banking sector affects the propagation of shocks.  In particular, we show how the world business cycle and shocks to the banking system affect output and employment through fluctuations in bank credit.  We also analyze the countercyclical use of reserve requirements.  Econometric evidence for Chile and Mexico supports the main predictions of the model.
ER  -