Paraguay: Selected Issues
International Monetary Fund, Aug 1, 2012 - Business & Economics - 29 pages
This Selected Issues paper for Paraguay discusses how capital inflows contributed to credit expansions. Capital inflows contribute to a rapid expansion of private credit, exacerbating credit and business cycles. These effects are stronger under more rigid exchange rate arrangements and in economies that are more closed to trade. Macroeconomic evidence for Paraguay suggests that local firms might have experienced a relaxation of credit constraints during the high capital inflows phase. Evidence also shows that consumption, investment, and output has grown above trend alongside a strong credit growth.
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advanced economies Brazil business cycle capital ﬂows capital inﬂows bonanzas capital inﬂows booms cash ﬂow Cashflow x Kl commodity price index Conditions in Trading countries currency risk Cyclical Deviation Decomposition of Response Domestic Credit Channels domestic financial conditions effective interest rate emerging economies emerging markets exchange rate arrangements exchange rate regimes exogenous external financial conditions external financial shocks Figure finance investment financial channel financial constraints financial linkages financial markets financial system firm-level data fixed exchange rate ﬂexible exchange rate food commodity prices foreign banks Fund staff calculations Fund staff estimates GDP to Financial global financial conditions impact International Monetary Fund Kl boom less ﬂexible exchange Magud market interest rate money market interest non-tradable Number of firms output Paraguay’s Paraguayan economy Paraguayan Non-Agricultural GDP periods of capital real credit growth real exchange rate reﬂect Response of Paraguayan rigid exchange rate specification tradable trade channel Trading Partners transmission trend variance decomposition