Boom-Bust Cycles in Middle Income Countries: Facts and Explanation / Aaron Tornell, Frank Westermann.

Format:

Book

Author/Creator:

Tornell, Aaron.

Contributor:

National Bureau of Economic Research.

Westermann, Frank.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9219.

NBER working paper series no. w9219

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2002.

Summary:

In this paper we characterize empirically the comovements of macro variables typically observed in middle income countries, as well as the boom-bust cycle' that has been observed during the last two decades. We find that many countries that have liberalized their financial markets, have witnessed the development of lending booms. Most of the time the boom gradually decelerates. But sometimes the boom ends in twin currency and banking crises, and is followed by a protracted credit crunch that outlives a short-lived recession. We also find that during lending booms there is a real appreciation and the nontradables (N) sector grows faster than the tradables (T) sector. Meanwhile, the opposite is true in the aftermath of crisis. We argue that these comovements are generated by the interaction of two characteristics of financing typical of middle income countries: risky currency mismatch and asymmetric financing opportunities across the N- and T-sectors.

Notes:

Print version record

September 2002.