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Showing papers by "Juan M. Sánchez published in 2010"


Journal ArticleDOI
TL;DR: In this article, a costly state verification model of financial intermediation is presented to address the question of how important financial development for economic development, and the analysis suggests a country like Uganda could increase its output by 116 percent if it could adopt the world's best practice in the financial sector.

174 citations


Journal ArticleDOI
TL;DR: In this article, a costly state verifier framework is embedded into the standard growth model to address how technological progress in …nancial intermediation aects the economy, and the framework has two novel ingredients.
Abstract: To address how technological progress in …nancial intermediation aects the economy, a costly- state veri…cation framework is embedded into the standard growth model. The framework has two novel ingredients. First, …rms dier in the risk/return combinations that they oer. Second, the e¢ cacy of monitoring depends upon the amount of resources invested in the activity. A …nancial theory of …rm size results. Undeserving …rms are over …nanced, deserving ones under funded. Technological advance in intermediation leads to more capital accumulation and a redirection of funds away from unproductive …rms toward productive ones. Quantitative analysis suggests that …nance is important for growth.

167 citations


Journal ArticleDOI
TL;DR: In this paper, the authors developed a quantitative dynamic stochastic small open economy model with incomplete markets, endogenous fiscal policy and sovereign default where public expenditures and tax rates are optimally procyclical.

127 citations


Posted Content
TL;DR: In this paper, a costly state verification model of financial intermediation is presented to address the question of how important financial development for economic development, and the model is calibrated to match facts about the U.S. economy, such as intermediation spreads and the firm-size distribution for the years 1974 and 2004.
Abstract: How important is financial development for economic development? A costly state verification model of financial intermediation is presented to address this question. The model is calibrated to match facts about the U.S. economy, such as intermediation spreads and the firm-size distribution for the years 1974 and 2004. It is then used to study the international data, using cross-country interest-rate spreads and per-capita GDP. The analysis suggests a country like Uganda could increase its output by 140 to 180 percent if it could adopt the world?s best practice in the financial sector. Still, this amounts to only 34 to 40 percent of the gap between Uganda?s potential and actual output.

33 citations


ReportDOI
TL;DR: In this paper, a model of unsecured borrowing with asymmetric information is developed to analyze the effect of changes in the cost of information on borrowing and bankruptcy, with the help of a two-period version of the model.
Abstract: Consumer bankruptcies rose sharply over the last 20 years in the U.S. economy. During the same period, there was impressive technological progress in the information sector (the IT revolution). At the same time, pricing of unsecured debt changed dramatically. The dispersion of interest rates rose substantially. More importantly, interest rates varied systematically with the borrowers' characteristics in 2004 but not in 1983. This suggests that changes in the information that lenders use to price debt may be behind changes in the unsecured credit market. A model of unsecured borrowing with asymmetric information is developed to analyze this hypothesis. The effect of changes in the cost of information on borrowing and bankruptcy is explained with the help of a two-period version of the model. A calibrated model is used to study the implications of the IT revolution further. Quantitative exercises show that information costs have a significant effect on the bankruptcy rate. Additionally, a drop in information costs generates other changes (e.g. the projection of the borrowers' characteristics on interest rates) similar to what has occurred over the last 20 years.

32 citations


Posted Content
TL;DR: In this article, a model of unsecured borrowing with asymmetric information is developed to analyze the effect of changes in the cost of information on borrowing and bankruptcy, with the help of a two-period version of the model.
Abstract: Consumer bankruptcies rose sharply over the last 20 years in the U.S. economy. During the same period, there was impressive technological progress in the information sector (the IT revolution). At the same time, pricing of unsecured debt changed dramatically. The dispersion of interest rates rose substantially. More importantly, interest rates varied systematically with the borrowers' characteristics in 2004 but not in 1983. This suggests that changes in the information that lenders use to price debt may be behind changes in the unsecured credit market. A model of unsecured borrowing with asymmetric information is developed to analyze this hypothesis. The effect of changes in the cost of information on borrowing and bankruptcy is explained with the help of a two-period version of the model. A calibrated model is used to study the implications of the IT revolution further. Quantitative exercises show that information costs have a significant effect on the bankruptcy rate. Additionally, a drop in information costs generates other changes (e.g. the projection of the borrowers' characteristics on interest rates) similar to what has occurred over the last 20 years.

19 citations


Journal ArticleDOI
TL;DR: In this article, a costly state verification model of financial intermediation is presented to address the question of how important financial development for economic development, and the model is calibrated to match facts about the U.S. economy, such as the intermediation spreads and the firm-size distributions for 1974 and 2004.
Abstract: How important is financial development for economic development? A costly state verification model of financial intermediation is presented to address this question. The model is calibrated to match facts about the U.S. economy, such as the intermediation spreads and the firm-size distributions for 1974 and 2004. It is then used to study the international data using cross-country interest-rate spreads and per-capita GDPs. The analysis suggests a country like Uganda could increase its output by 116 percent if it could adopt the world’s best practice in the financial sector. Still, this amounts to only 29 percent of the gap between Uganda’s potential and actual output.

10 citations


Posted Content
TL;DR: This paper found that small firms are more likely to be credit-constrained and thus tend to be affected more negatively than large firms during such times, while large firms and small firms behave differently when credit becomes more costly or harder to obtain.
Abstract: Do large firms and small firms behave differently when credit becomes more costly or harder to obtain? Past research has found that small firms are more likely to be credit-constrained and thus tend to be affected more negatively than large firms during such times. Recent findings from the 2007-2009 recession, however, raise questions about the roles of small and large firms during periods of tight credit

6 citations


Posted Content
TL;DR: In this article, the authors consider a stochastic growth model with preference shocks and two risk-averse agents and find that the best allocation compatible with incentives would tend to hurt growth and to concentrate resources in agents with private information in order to provide incentives to report the shock truthfully.
Abstract: We first study growth and risk sharing in a stochastic growth model with preference shocks and two risk-averse agents. In periods in which one of the agents needs extra consumption (insurance), it is socially optimal to reduce the consumption of the other agent (redistribution) and also to accumulate fewer resources for the future (disinvestment). The latter hurts growth while the former only affects the distribution of aggregate consumption. Then, to analyze if information matters, we study if the same allocation would be implementable under private information. We find that it depends on the state of the economy. The provision of insurance that is implemented by reducing capital accumulation deteriorates the prospects of all agents in the economy and thus helps to alleviate informational frictions. The size of redistribution versus disinvestment and the outlook of economic growth at the time of disinvestment affects the possibilities of implementing the best possible allocation when the preference shock is private information. Therefore, we conjecture that under private information the best allocation compatible with incentives would tend to hurt growth and to concentrate resources in agents with private information in order to provide incentives to report the shock truthfully.

3 citations


Posted Content
TL;DR: In this article, the authors consider a stochastic growth model with preference shocks and two risk-averse agents and find that the best allocation compatible with incentives would tend to hurt growth and to concentrate resources in agents with private information in order to provide incentives to report the shock truthfully.
Abstract: We first study growth and risk sharing in a stochastic growth model with preference shocks and two risk-averse agents. In periods in which one of the agents needs extra consumption (insurance), it is socially optimal to reduce the consumption of the other agent (redistribution) and also to accumulate fewer resources for the future (disinvestment). The latter hurts growth while the former only affects the distribution of aggregate consumption. Then, to analyze if information matters, we study if the same allocation would be implementable under private information. We find that it depends on the state of the economy. The provision of insurance that is implemented by reducing capital accumulation deteriorates the prospects of all agents in the economy and thus helps to alleviate informational frictions. The size of redistribution versus disinvestment and the outlook of economic growth at the time of disinvestment affects the possibilities of implementing the best possible allocation when the preference shock is private information. Therefore, we conjecture that under private information the best allocation compatible with incentives would tend to hurt growth and to concentrate resources in agents with private information in order to provide incentives to report the shock truthfully.

1 citations


01 Jan 2010
TL;DR: In this article, a costly state verifier-cation model of financial intermediation is presented to address the question of how important financial development is for economic development, and the model is calibrated to match facts about the U.S. economy, such as intermediation spreads and the …rm-size distribution for the years 1974 and 2004.
Abstract: How important is …nancial development for economic development? A costly state veri…cation model of …nancial intermediation is presented to address this question. The model is calibrated to match facts about the U.S. economy, such as intermediation spreads and the …rm-size distribution for the years 1974 and 2004. It is then used to study the international data, using cross-country interest-rate spreads and per-capita GDP. The analysis suggests a country like Uganda could increase its output by 140 to 180% if it could adopt the world’s best practice in the …nancial sector. Still, this amounts to only 34 to 40% of the gap between Uganda’s potential and actual output.