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| Author: | Balmaceda, F. Fischer, R. |
| Title: | Economic performance, creditor protection, and labour inflexibility |
| Journal: | Oxford Economic Papers
2010 : JUL, VOL. 62:3, p. 553-577 |
| Index terms: | credit markets interest rates wealth |
| Language: | eng |
| Abstract: | This paper presents a static general equilibrium model of an open economy where agents are heterogenous in terms of observable wealth. There are endogenous credit constraints due to imperfect creditor protection in this economy. The study indicates that improved credit protection, harder assets and more efficient bankruptcy procedures increase output, investment and credit penetration. The findings suggest that better credit protection and harder assets lead to higher interest rate spreads. The results also reveal that in a capital constrained (unconstrained) economy, greater (lower) wealth inequality leads to higher (lower) investment and output. Interest rate spreads are lower in richer and more unequal economies. Increased labour protection leads to lower wages and output in the presence of credit market imperfections. However, increased protection benefits workers in firms with strong balance sheets. |
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