European Parliament Library

Growth and Crisis, Unavoidable Connection?, Roberto Piazza

Abstract
In emerging economies periods of rapid growth and large capital inflows can be followed by sudden stops and financial crises. I show that, in the presence of financial markets imperfections, a simple modification of a neoclassical growth model can account for these facts. I study a growth model for a small open economy where decreasing marginal returns to capital appear only after the country has reached a threshold level of development, which is uncertain. Limited enforceability of contracts allows default on international debt. International investors optimally choose to suddenly restrict lending when the appearance of decreasing marginal returns slows down growth. The economy defaults and enters a financial crisis
Table Of Contents
Cover Page; Title Page; Copyright Page; Contents; I. Introduction; II. Model; A. Technology; B. Households; C. International Investors; III. Equilibrium; IV. Equilibrium with Endogenous Borrowing Constraints; V. Results; VI. Debt and Bubbles; VII. Discussion and Extensions; A. Comparison with Other Models of Sudden Stops; B. Extension; VIII. Conclusions; Appendices; References; Footnotes
Language
eng
Literary Form
non fiction
Note
"November 2010."
Physical Description
1 online resource (64 p.)
Specific Material Designation
remote
Form Of Item
online
Isbn
9781455211500

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