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Wiley InterScience | |||
  Review of Economic StudiesVolume 71 Issue 3, Pages 883 - 913 Published Online: 27 Jul 2004 © 2010 The Review of Economic Studies Limited
Abstract | References | Full Text: HTML, PDF (Size: 353K) | Related Articles | Citation Tracking  Balance Sheet Effects, Bailout Guarantees and Financial Crises Acknowledgements. We would like to thank Costas Azariadis, Philippe Bachetta, Ricardo Caballero, Jonas Fisher, Jeffrey Frankel, Mark Gertler, David Marshall, Monika Piazzesi, Assaf Razin, Tom Sargent, Andres Velasco, Annette Vissing-Jorgensen and seminar participants at Columbia, the Econometric Society Meetings, the NBER Summer Institute, the Federal Reserve Banks of Chicago and New York, NYU, Princeton, Stanford, Tel Aviv, and UCLA for comments and suggestions. All errors are our own. Copyright 2004 The Review of Economic Studies Ltd ABSTRACTThis paper provides a model of boom-bust episodes in middle-income countries. It is based on sectoral differences in corporate finance: the nontradables sector is special in that it faces a contract enforceability problem and enjoys bailout guarantees. As a result, currency mismatch and borrowing constraints arise endogenously in that sector. This sectoral asymmetry allows the model to replicate the main features of observed boom–bust episodes. In particular, episodes begin with a lending boom and a real appreciation, peak in a self-fulfilling crisis during which a real depreciation coincides with widespread bankruptcies, and end in a recession and credit crunch. The nontradables sector accounts for most of the volatility in output and credit. First version received June 2001; final version accepted June 2003 (Eds.) | 
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