Domestic financial frictions and the transmission of foreign shocks in Chile

• Autores: García Cicco, Javier; Kirchner, Markus; Justel, Santiago
• Año de publicación: 2015
• Idioma: español castellano
• Tipo de recurso: parte de libro
• Fuente: Raddatz, C.E., Saravia, E., Ventrua, J. (eds.). Global liquidity, spillovers to emerging markets and policy responses. Santiago de Chile: Banco Central de Chile, 2015; Volumen 20: Serie Banca Central, Análisis y políticas Económicas
• Materia: LIQUIDEZ; ESTABILIDAD ECONOMICA; MACROECONOMIA; BANCOS
• Institución: Pontificia Universidad Católica Argentina

Fil: García-Cicco, Javier. Banco Central de Chile; Chile
Fil: García-Cicco, Javier. Pontificia Universidad Católica Argentina. Facultad de Ciencias Económicas; Argentina
Fil: Kirchner, Markus. Banco Central de Chile; Chile
Fil: Justel, Santiago. Banco Central de Chile; Chile
Abstract: In the early 90’s a literature emerged emphasizing the role of external factors in explaining business cycle fluctuations in emerging countries. In particular, changes in the terms of trade and world interest rates are generally viewed as the main external factors affecting these economies. Additionally, part of this literature has also highlighted the role of financial frictions in explaining the propagation of external shocks where these frictions arise in the relationship between foreign lenders and domestic borrowers. The role of country premia, the possibility of sovereign default, and financial dollarization are some of the propagation mechanisms that have been highlighted by this literature. All these features generate a wedge between foreign and domestic interest rates. Given the number of financial and currency crises, as well as episodes of sovereign default, that have affected the emerging world in the 80’s and 90’s, it is not hard to see the relevance of these arguments.