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On the Role of the Collateral Constraint Friction in the North–South Transmission of the 2008–2009 Financial Crisis

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  • Ha M. Nguyen

Abstract

This paper assesses the role of a popular collateral constraint–based transmission mechanism in the North–South transmission of the 2008–2009 financial crisis. Theoretically, in the presence of collateral constraints, depressed asset prices caused by a negative shock in a large creditor country generate feedback cycles in a smaller debtor country, in which the decline in borrowing capacity and the collapses of investment and output reinforce each other. I find that although the mechanism has appealing qualitative features and is consistent with the data, quantitative results from the model can only account for a very small part of the actual output declines.

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  • Ha M. Nguyen, 2022. "On the Role of the Collateral Constraint Friction in the North–South Transmission of the 2008–2009 Financial Crisis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(2-3), pages 707-728, March.
    • Handle: RePEc:wly:jmoncb:v:54:y:2022:i:2-3:p:707-728
    DOI: 10.1111/jmcb.12801
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