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Contagion, bank lending spreads, and output fluctuations (English)

The authors study how contagion affects bank lending spreads and fluctuations in output in Argentina. They analyze what determines bank lending spreads when verification and enforcement costs for loan contracts are high. They present estimates of a vector auto-regression model that relates bank lending spreads, the cyclical component of output, the real bank lending rate, and the spread in external interest rates. Using generalized impulse response functions, they show that a positive historical shock to external spreads leads to an increase in domestic spreads and a reduction in the cyclical component of output. Historical decompositions indicate that shocks to external spreads immediately after the Mexican peso crisis had a sizable effect on movements in output and domestic interest rate spreads in Argentina.

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Citation

Agenor, Pierre-Richard Aizenman, Joshua Hoffmais

Contagion, bank lending spreads, and output fluctuations (English). Policy, Research working paper,no. WPS 2186 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/725541468740706779/Contagion-bank-lending-spreads-and-output-fluctuations