Revisiting Overborrowing and Its Policy Implications
This paper analyzes quantitatively the extent to which there is overborrowing (i.e., inefficient borrowing) in a business cycle model for emerging market economies with production and an occasionally binding credit constraint. The main finding of the analysis is that overborrowing is not a robust feature of this class of model economies: it depends on the structure of the economy and its parametrization. Specifcally, underborrowing in a production economy is found with the baseline calibration, but overborrowing with more impatient agents and more volatile shocks. Endowment economies display overborrowing regardless of parameter values, but they do not allow for policy intervention when the constraint binds (in crisis times). Quantitatively, the welfare gains from implementing the constrained¬effcient allocation are always larger near crisis times than in normal ones. In production economies, they are one order of magnitude larger than in endowment economies both in crisis and normal times. This suggests that the scope for economy¬widemacro¬prudential policy interventions (e.g., prudential taxation of capital flows and capital controls) is weak in this class of models.
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Inter-American Development Bank
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Subjects: | Fiscal Policy, E52 - Monetary Policy, F37 - International Finance Forecasting and Simulation: Models and Applications, F41 - Open Economy Macroeconomics, IDB-WP-185, |
Online Access: | http://dx.doi.org/10.18235/0010985 https://publications.iadb.org/en/revisiting-overborrowing-and-its-policy-implications |
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dig-bid-node-102232024-05-30T20:25:17ZRevisiting Overborrowing and Its Policy Implications 2010-07-01T00:00:00+0000 http://dx.doi.org/10.18235/0010985 https://publications.iadb.org/en/revisiting-overborrowing-and-its-policy-implications Inter-American Development Bank Fiscal Policy E52 - Monetary Policy F37 - International Finance Forecasting and Simulation: Models and Applications F41 - Open Economy Macroeconomics IDB-WP-185 This paper analyzes quantitatively the extent to which there is overborrowing (i.e., inefficient borrowing) in a business cycle model for emerging market economies with production and an occasionally binding credit constraint. The main finding of the analysis is that overborrowing is not a robust feature of this class of model economies: it depends on the structure of the economy and its parametrization. Specifcally, underborrowing in a production economy is found with the baseline calibration, but overborrowing with more impatient agents and more volatile shocks. Endowment economies display overborrowing regardless of parameter values, but they do not allow for policy intervention when the constraint binds (in crisis times). Quantitatively, the welfare gains from implementing the constrained¬effcient allocation are always larger near crisis times than in normal ones. In production economies, they are one order of magnitude larger than in endowment economies both in crisis and normal times. This suggests that the scope for economy¬widemacro¬prudential policy interventions (e.g., prudential taxation of capital flows and capital controls) is weak in this class of models. Inter-American Development Bank Gianluca Benigno Huigang Chen Christopher Otrok Alessandro Rebucci Eric R. Young Working Papers application/pdf IDB Publications The Caribbean Central America South America en |
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Fiscal Policy E52 - Monetary Policy F37 - International Finance Forecasting and Simulation: Models and Applications F41 - Open Economy Macroeconomics IDB-WP-185 Fiscal Policy E52 - Monetary Policy F37 - International Finance Forecasting and Simulation: Models and Applications F41 - Open Economy Macroeconomics IDB-WP-185 |
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Fiscal Policy E52 - Monetary Policy F37 - International Finance Forecasting and Simulation: Models and Applications F41 - Open Economy Macroeconomics IDB-WP-185 Fiscal Policy E52 - Monetary Policy F37 - International Finance Forecasting and Simulation: Models and Applications F41 - Open Economy Macroeconomics IDB-WP-185 Inter-American Development Bank Revisiting Overborrowing and Its Policy Implications |
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This paper analyzes quantitatively the extent to which there is overborrowing (i.e., inefficient borrowing) in a business cycle model for emerging market economies with production and an occasionally binding credit constraint. The main finding of the analysis is that overborrowing is not a robust feature of this class of model economies: it depends on the structure of the economy and its parametrization. Specifcally, underborrowing in a production economy is found with the baseline calibration, but overborrowing with more impatient agents and more volatile shocks. Endowment economies display overborrowing regardless of parameter values, but they do not allow for policy intervention when the constraint binds (in crisis times). Quantitatively, the welfare gains from implementing the constrained¬effcient allocation are always larger near crisis times than in normal ones. In production economies, they are one order of magnitude larger than in endowment economies both in crisis and normal times. This suggests that the scope for economy¬widemacro¬prudential policy interventions (e.g., prudential taxation of capital flows and capital controls) is weak in this class of models. |
author2 |
Gianluca Benigno |
author_facet |
Gianluca Benigno Inter-American Development Bank |
format |
Working Papers |
topic_facet |
Fiscal Policy E52 - Monetary Policy F37 - International Finance Forecasting and Simulation: Models and Applications F41 - Open Economy Macroeconomics IDB-WP-185 |
author |
Inter-American Development Bank |
author_sort |
Inter-American Development Bank |
title |
Revisiting Overborrowing and Its Policy Implications |
title_short |
Revisiting Overborrowing and Its Policy Implications |
title_full |
Revisiting Overborrowing and Its Policy Implications |
title_fullStr |
Revisiting Overborrowing and Its Policy Implications |
title_full_unstemmed |
Revisiting Overborrowing and Its Policy Implications |
title_sort |
revisiting overborrowing and its policy implications |
publisher |
Inter-American Development Bank |
url |
http://dx.doi.org/10.18235/0010985 https://publications.iadb.org/en/revisiting-overborrowing-and-its-policy-implications |
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AT interamericandevelopmentbank revisitingoverborrowinganditspolicyimplications |
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1809106706820497408 |