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Sudden Stops, Output Drops, And Credit Collapses

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  • Dagher, Jihad C.

Abstract

This paper proposes a tractable sudden stop model to explain the main patterns in firm-level data from a sample of Southeast Asian firms during the Asian crisis. The model incorporates trend shocks and financial frictions, features that have so far been used separately in the literature on emerging markets. A negative shock to trend productivity growth can account, in our model, for the drop in output and its swift recovery together with the sizable and persistent downward adjustment in firms' Tobin's Q and debt levels. These patterns are broadly shared by most sudden stop episodes as documented in the literature. Trend shocks can also generate, in our model, strong leverage effects in line with the firm-level data and other observations from the literature.

Suggested Citation

  • Dagher, Jihad C., 2014. "Sudden Stops, Output Drops, And Credit Collapses," Macroeconomic Dynamics, Cambridge University Press, vol. 18(4), pages 812-837, June.
    • Handle: RePEc:cup:macdyn:v:18:y:2014:i:04:p:812-837_00
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    Cited by:

    1. Martin Bijsterbosch & Tatjana Dahlhaus, 2015. "Key features and determinants of credit-less recoveries," Empirical Economics, Springer, vol. 49(4), pages 1245-1269, December.
    2. Atolia, Manoj & Gibson, John & Marquis, Milton, 2018. "Asymmetry And The Amplitude Of Business Cycle Fluctuations: A Quantitative Investigation Of The Role Of Financial Frictions," Macroeconomic Dynamics, Cambridge University Press, vol. 22(2), pages 279-306, March.

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