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| Author: | Agenor, P. Aizenman, J. |
| Title: | Contagion and volatility with imperfect credit markets |
| Journal: | Staff Papers
1998 : JUN, VOL. 45:2, p. 207-235 |
| Index terms: | VOLATILITY CREDIT MARKETS MONEY |
| Language: | eng |
| Abstract: | This paper interprets contagion effects as an increase in the volatility of shocks impinging on the economy. The implications of this approach are analyzed in a model in which domestic banks borrow at a premium on world capital markets, and domestic procedures borrow at a premium from domestic banks. Financial spreads depend on a markup that compensates lenders, in particular, for the expected cost of contract enforcement. Higher volatility increases financial spreads and the producers' cost of capital. |
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