Article

Downward Wage Rigidities and Other Firms’ Responses to an Economic Slowdown: Evidence from a Survey of Colombian Firms

BANCO DE LA REPÚBLICA, BORRADORES DE ECONOMIA 01/2010;
Source: RePEc

ABSTRACT We study the functioning of secured and unsecured interbank markets in the presence of credit risk. The model generates empirical predictions that are in line with developments during the 2007–09 financial crisis. Interest rates decouple across secured and unsecured markets following an adverse shock to credit risk. The scarcity of underlying collateral may amplify the volatility of interest rates in secured markets. We use the model to discuss various policy responses to the crisis.

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Keywords

adverse shock
 
collateral
 
credit risk
 
developments
 
empirical predictions
 
Interest rates decouple
 
various policy responses