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Twin crises in emerging markets: The role of liability dollarization and imperfect competition in banking
Please use this identifier to cite or link to this item:
http://hdl.handle.net/1860/1835
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| Title: | Twin crises in emerging markets: The role of liability dollarization and imperfect competition in banking |
| Authors: | Luca, Alina C.
Olivero, Maria Pia |
| Keywords: | Devaluation
Twin crises
Balance sheet effects
Liability dollarization
Imperfect competition
Product differentiation |
| Issue Date: | Apr-2007 |
| Citation: | Paper presented at the Spring 2007 Midwest Theory and Trade Meetings, Minneapolis-St. Paul, MN. |
| Abstract: | Recent currency crises in emerging markets have been accompanied by banking
crises, with concentration in the market for bank credit increasing after large devaluations.
In this paper we study the role of imperfect competition and liability
dollarization in banking in shaping the real effects of twin crises. We do so by introducing
currency mismatches in a modified version of the Schargrodsky and Sturzenegger
(2000) model of imperfect competition in the banking industry with endogenous
product differentiation, and then embedding it in an otherwise standard general equilibrium
model of a small open economy. We show that both imperfections-currency
mismatches and imperfect competition in banking-can generate a banking crisis in the
presence of an exogenous currency crisis. We then discuss the contribution of each
distortion to the magnitude of crises. |
| URI: | http://hdl.handle.net/1860/1835 |
| Appears in Collections: | Faculty Research and Publications (Economics & International Business)
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