More or less openness? The credit cycle, housing, and policy

Fa ias, Ma ia Elisa; Godoy, Da id R.
A icle
Mo e o less openness? The c edi cycle, housing, and
policy
Economies
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MDPI – Mul idisciplina y Digi al Publishing Ins i u e, Basel
Sugges ed Ci a ion: Fa ias, Ma ia Elisa; Godoy, Da id R. (2025) : Mo e o less openness? The c edi
cycle, housing, and policy, Economies, ISSN 2227-7099, MDPI, Basel, Vol. 13, Iss. 7, pp. 1-46,
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Ci a ion: Fa ias, M. E., & Godoy, D. R.
(2025). Mo e o Less Openness? The
C edi Cycle, Housing, and Policy.
Economies,13(7), 207. h ps://doi.o g/
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A icle
Mo e o Less Openness? The C edi Cycle, Housing, and Policy
Ma ia Elisa Fa ias * and Da id R. Godoy
Depa men o Indus ial Enginee ing, Uni e sidad Técnica Fede ico San a Ma ía, A enida San a Ma ía 6400,
San iago 7630000, Chile; [email p o ec ed]
*Co espondence: [email p o ec ed]
Abs ac
Housing p ices ha e ecen ly isen sha ply in many coun ies, p ima ily linked o he
global c edi cycle. Al hough a ious ac o s play a ole, he abili y o de eloping coun ies
o na iga e his cycle and main ain au onomous mone a y policies is c ucial. This pape
in oduces a dynamic mac oeconomic model ea u ing a housing p oduc ion sec o wi hin
an impe ec banking amewo k. I cap u es key housing and economic dynamics in
ad anced and eme ging economies. The analysis shows domes ic liquidi y policies, such
as bank capi al equi emen s, ese e a ios, and cu ency de alua ion, can s abilize in es -
men and p oduc ion. Howe e , hei e ec i eness depends on o eign in e es a es and
liquidi y. S abilizing housing p ices and isk- ee bonds is mo e e ec i e in high-in e es
en i onmen s, while o eign liquidi y shocks ha e asymme ic impac s. They can boos o
lowe he e ec i eness o domes ic policy, depending on he coun y’s le el o inancial
de elopmen . These indings ha e se e al policy implica ions. Fo example, o eign capi al
con ols would be adequa e in he sho e m bu no in he long e m. Ins ead, go e nmen s
would y o p omo e he de elopmen o local inancial ma ke s. Con olling deb should
be a a ge o mac op uden ial policy as well as p omo ing sa ing ins umen s o he han
eal es a e, especially du ing low in e es a es.
Keywo ds: c edi cycle; housing shocks; small open economy; in es men decisions;
mone a y policy
JEL Classi ica ion: E1; E4; E5; E6
1. In oduc ion
This esea ch add esses h ee majo conce ns ha ha e a ec ed global economies in
ecen yea s: housing p ices, inancial and mac oeconomic s abili y, and policy esponses.
As shown in Figu es 1and 2, ep esen ing de eloped and de eloping coun ies, espec-
i ely, housing p ices ha e gene ally inc eased since 2014, wi h ew excep ions. This end
aligns wi h pe iods o low global in e es a es ( ede al und a es). A e sha p declines
du ing he 2009 global inancial c isis, housing p ices
1
inc eased by up o 14 pe cen in
de eloped coun ies be ween 2015 and 2022, and by app oxima ely 32 pe cen on a e age
in de eloping coun ies. Wi h ongoing u baniza ion in de eloping coun ies and wa es
o immig a ion, excess demand has led o housing sho ages in many a eas,
2
some imes
accompanied by land specula ion.
Wha mechanisms d i e hese dynamics? A e he e no able di e ences be ween
de eloped and de eloping coun ies? Based on e idence om de eloped coun ies, au ho s
such as Iaco iello (2005), Iaco iello and Ne i (2010), and Quad ini (2020) link housing p ice
dynamics o he c edi cycle, whe e housing p ices end o inc ease as bo owing cos s
Economies 2025,13, 207 h ps://doi.o g/10.3390/economies13070207
Economies 2025,13, 207 2 o 46
dec ease. Al hough highe p ices inc ease deb se icing cos s, hey also enhance deb o s’
bo owing capaci y, especially when deb is colla e alized in nominal e ms.
Figu e 1. Housing cos s and in e es a es in de eloped coun ies.
Figu e 2. Housing cos s and in e es a es in de eloping coun ies.
Se e al pe iods o housing p ice booms can be explained by simila mechanisms,
whe e shi s in agen s’ expec a ions, colla e al cons ain s, and unce ain y exace ba e ma -
ke dis ess (Ge e,2020;Eichenbaum e al.,2022). The Asian inancial c isis o
1998–1999
and he 2009 global inancial c isis exempli y he s ong co ela ion be ween c edi a ailabil-
Economies 2025,13, 207 3 o 46
i y and housing ma ke collapses, wi h a ying deg ees o spillo e ac oss global economies
(see Cox & Lud igson,2019).
A second pe spec i e, highly ele an o de eloping coun ies, a ibu es he ola ili y
o housing p ices o deb and inancial in eg a ion (Mian e al.,2017). Table A1 shows
ha he c edi inancing a ios o housing in es men a e simila be ween de eloped and
de eloping coun ies. Howe e , in open economies, inancial ma ke s a e mo e suscep ible
o dis ess when global c edi condi ions igh en—pa icula ly when deb is denomina ed
in o eign cu ency.
3
As eme ging ma ke s become mo e inancially in eg a ed wi h global
ma ke s—especially wi h majo economies— hese ulne abili ies a e in ensi ied. Da a om
45 coun ies (bo h de eloped and de eloping)
4
o he main s a is ics be ween 2001 and
2022 e eal a s ong co ela ion be ween changes in c edi - o-GDP a ios and co esponding
changes in he U.S. a io. When compa ing he pe iods be o e he c isis (2001–2014) and
a e he c isis (2015–2022), his co ela ion inc eased o bo h g oups (see Table A3). On
he o he hand, Table A4 shows a s ong co ela ion be ween household deb and housing
p ices, especially o de eloping coun ies a e 2015.
A hi d explana ion conside s he dual na u e o housing: as a undamen al human
need o shel e and as a sou ce o weal h accumula ion (including p ecau iona y sa ings).
Shocks can sp ead be ween he inancial and housing ma ke s, in luencing indi idual
decisions and b oade economic ou comes (Ng & Feng,2016). Al hough his phenomenon
exis s in all economies, de eloping coun ies a e o en mo e ulne able, especially in he
ace o inc easing inancial in eg a ion. Dong e al. (2021) p o ide e idence om China,
whe e unde de eloped inancial ma ke s and a sca ci y o sa e asse s ha e led households
o iew eal es a e as a p ima y sa ings ehicle, d i ing p ices upwa d—pa icula ly du ing
pe iods o unce ain y.5
O he sou ces o dis ess include in la ion p essu es, as depic ed in Figu e 3a–c. Al-
hough a posi i e co ela ion be ween in la ion and housing p ices is e iden be ween
coun ies, he beha io di e s be ween de eloped and de eloping economies. Acco ding
o Table A5, in de eloping coun ies, he in e es a e gap be ween he na ional and US
economies is highly co ela ed wi h in la ion. In de eloped coun ies, in e es a e gaps
would be mo e co ela ed wi h he de alua ion o he cu ency.
Wha ole does policy play in his con ex ? Financial in eg a ion can deepen c edi
ma ke s and bene i de eloping coun ies by expanding in es men and sa ings oppo u-
ni ies. Howe e , i also in oduces highe isks, especially o smalle coun ies (Rey,2016,
2018), which a e mo e exposed o global c edi cycles when mone a y au onomy is limi ed
6
.
In such cases, policy shocks, such as in e es a e changes o liquidi y adjus men s, can be
ansmi ed om la ge economies7 o de eloping coun ies (Ilze zki & Jin,2021).
Go e nmen s ha e sough ways o mi iga e inancial and mac oeconomic shocks,
especially since he 2008 c isis e ealed he limi a ions o adi ional ools such as in la-
ion a ge ing, iscal discipline, and lexible exchange a es. Since 2008, mac op uden ial
measu es—such as capi al con ols, ese e accumula ion, and non adi ional mone a y
ools— ha e gained p ominence, as seen in coun ies like China, which has implemen ed
es ic ions on housing pu chases o s abilize p ices (Reinha e al.,2015;Dong e al.,2021;
Pa ei o-Rod iguez e al.,2025).
Despi e hese e o s, deba es pe sis abou he e ec i eness o policies du ing inancial
dis ess. Low global in e es a es, pa icula ly in majo economies, do no always bene i
de eloping coun ies equally (Quad ini,2020). E idence indica es ha , wi h some excep-
ions ( o example, India and Vie nam), hei economic pe o mance has been ela i ely
weak ecen ly. Be ween 2001 and 2022, de eloping coun ies inc eased on a e age by
3.6 pe cen , wi h lending a es a ound 13 pe cen . F om 2015 o 2022, g ow h slowed o
2.6 pe cen , despi e lowe in e es a es.
Economies 2025,13, 207 4 o 46
(a)
(b)
(c)
Figu e 3. In la ion and housing p ices: (a) all coun ies; (b) de eloped coun ies; (c) de eloping
coun ies.

Economies 2025,13, 207 5 o 46
The ques ion emains: Wha policies a e mos e ec i e o de eloping coun ies wi h
lexible exchange a es and which s a egies bes ensu e inancial s abili y while achie ing
na ional objec i es?
To add ess hese ques ions, we de elop a gene al equilib ium model ep esen ing an
open economy exposed o he c edi cycle, wi h he e ogeneous agen s, ma ke ic ions, and
pe ec and impe ec compe i ion in he banking sec o . We examine policy implica ions
when he cen al bank’s au onomy is cons ained by analyzing ou comes unde low-
and high-in e es a es. Recen heo e ical models ha e ad anced by including di e en
dissemina ion mechanisms in de eloped and de eloping coun ies. Howe e , hey ail o
conside mo e ealis ic en i onmen s, such as ma ke impe ec ions in he banking sec o
and he ole o na ional liquidi y in open economies. Ou model ills hese gaps.
The main con ibu ions o he p esen wo k a e summa ized as ollows: (1) he pape
de elops a dynamic mac oeconomic model wi h an embedded housing p oduc ion sec o ,
in which in es men e u ns a e subjec o unce ain y and demand is endogenously de e -
mined by households’ p e e ences, ela i e p ices, in e es a es, and income. This s uc u e
allows he model o accoun o s ylized housing and agg ega e dynamics obse ed in bo h
ad anced and eme ging economies. (2) The analysis iden i ies he condi ions unde which
domes ic liquidi y enhancing policies—such as banks’ capi aliza ion, ese e a ios, and
cu ency de alua ion—succeed o ail in s abilizing in es men and ou pu . In pa icula ,
he e ec i eness o hese ools depends c ucially on he le el o o eign in e es a es, whe e
al e na i e measu es such as housing p ices s abiliza ion and isk- ee bonds a e p e e able
in high-in e es a es scena ios. (3) The esul s demons a e s ong obus ness ac oss model
calib a ions and highligh he asymme ic in luence o o eign liquidi y shocks. Depending
on inancial de elopmen , o eign liquidi y can ein o ce o o e ide domes ic ins umen s.
These indings imply ha capi al con ol measu es, especially hose ha a ge in low
es ic ions, should be designed wi h awa eness o he ex e nal a e en i onmen and he
dep h o he inancial ma ke .
The es o he pape p oceeds as ollows: Sec ion 2discusses he heo e ical amewo k,
and Sec ion 3de elops a model o examine he ansmission mechanisms o he global
c edi cycle in an open economy. Sec ion 4analyzes mone a y policy, Sec ion 5p esen s a
nume ical exe cise, and Sec ion 6concludes.
2. Rela ed Li e a u e
The heo e ical amewo k in eg a es he app oach o Be nanke e al. (1999) wi h
mo e ecen li e a u e ha explains asse ma ke beha io (see o example, Iaco iello &
Ne i,2010;Ge e,2020;Quad ini,2020;Geanakoplos & Wang,2020) such as he housing
ma ke , wi hin he con ex o he global c edi cycle. Al hough some o hese models a e
p ima ily based on he expe iences o de eloped coun ies, hey a e also applicable o
analyzing de eloping coun ies. Beyond classi ying coun ies acco ding o a pe capi a
GDP on ie , de eloping na ions oday ace challenges common o de eloped and less
de eloped economies. Economic s abili y emains a signi ican conce n o hese g oups.
The p ima y di e ences lie in he deg ee o global ma ke powe , he magni ude o economic
p oblems, and he capaci y o hese economies o add ess hem.
Acco ding o Rey (2016,2018), he global c edi cycle can be unde s ood h ough
como emen s in isky asse p ices, c edi g ow h, le e age, and inancial agg ega es ac oss
coun ies a ound he wo ld. Building on he ea ly ideas o Minsky (1986), Kiyo aki and
Moo e (1997) a gue ha c edi cycles eme ge in an economy due o wo main ac o s:
(i) c edi cons ain s a ec ing i ms, and (ii) he use o p oduc i e asse s, such as colla e al.
The in e ac ion o hese ac o s ansmi s luc ua ions in asse p ices o he c edi ma ke
and subsequen ly o he eal economy. F om a na ional economic pe spec i e, Geanakoplos
Economies 2025,13, 207 6 o 46
(2016) and Bo a and Zhong (2023) sugges ha he c edi cycle is ela ed o he business
cycle o ma ke economies, which ma ke ic ions and impe ec ions can ampli y. B uno
and Shin (2015) highligh he ole o c oss-bo de mone a y policy spillo e s channeled
h ough global banks in open economies. In his con ex , Rey (2018) links c edi cycles wi h
mone a y policies in he cen al coun y and changes in isk a e sion and unce ain y.
Conce ning he ansmission mechanisms o shocks, such as mone a y policy shocks,
heo ies iden i y in e es a es and c edi channels, unce ain y and expec a ions, he
colla e al channel, he supply side and global spillo e , among o he s. Rega ding in e es
a es and c edi , he li e a u e emphasizes he ole o banks and inancial in e media ies
ha can inc ease inancial dis ess when inancial ma ke ic ions occu (Ramey,2016;
Ge le e al.,2016). Failu es in common knowledge and impe ec in o ma ion ha e
been included in he li e a u e o explain phenomena o asse bubbles and ad e se shock
dissemina ion (Caballe o & K ishnamu hy,2008;Kama a & Ko aila,2023;Caballe o &
Simsek,2022). In he case o colla e al, since Kiyo aki and Moo e (1997), he heo ies
ha e e ol ed by in oducing asse p ice dynamics in esponse o mone a y policy, such
as quan i a i e easing (Geanakoplos & Wang,2020). Adop ing a di e en pe spec i e,
Baqaee e al. (2024) p opose a supply-side channel in which expansiona y mone a y policy
can s imula e p oduc i i y a he agg ega e le el. In e ms o global spillo e , ex ensi e
esea ch links policy decisions in cen al coun ies wi h capi al lows, cu en accoun s, and
exchange a es in open economies (Cal o e al.,2006).
Howe e , schola s di e abou he mo e app op ia e ins umen s o mone a y policy.
Du ing inancial dis ess, o example, he adi ional pe spec i e p ima ily ocused on
add essing in la ion and educing ou pu gaps would be challenged by he ac s (Walsh,
2010;Ch is iano e al.,2010). Thus, in e es a e cu s, such as lowe ing a es du ing
economic booms d i en by op imis ic expec a ions, may con ibu e o asse ma ke booms
(e.g., he Japanese s ock ma ke boom o he 1980s). Ins ead, hese au ho s p opose ha
c edi g ow h could be a p oxy o he na u al in e es a e wi hin he in e es a e ule,
he eby imp o ing he economy’s esponse o mone a y policy. Simila ly, Geanakoplos
(2016) and Cla ida (2019) ind e idence ha he e ec i eness o mone a y policy diminishes
when inancial ma ke s expe ience u bulence.
Resea ch on open economies emphasizes he choice o exchange a e egimes o
s abili y and compe i i eness (Gali & Monacelli,2005). A e he global inancial c isis, he
ocus shi ed o inancial s abili y and new in e en ion ools, including inancial egula ion
(Rey,2018;Ca illo e al.,2021). Ma ke impe ec ions, such as igid p ices and in o ma ional
p oblems, limi adi ional mone a y policy, especially in open and de eloping coun ies
wi h less policy space. Consequen ly, Rey (2018) sugges s eplacing he “ ilemma” wi h a
“dilemma”. Independen mone a y policy is only easible i he capi al accoun is managed,
ega dless o exchange a e egimes.8
Recen in e na ional shocks ha e challenged adi ional heo ies, pa icula ly in de el-
oping coun ies. An expansiona y global c edi cycle can boos liquidi y and g ow h, bu
due o ma ke impe ec ions, i o en causes u bulence o limi ed bene i s.
The li e a u e on he housing sec o e ol ed a e he las inancial c isis, highligh ing
spillo e mechanisms, such as in e es a es and c edi s, and he colla e al channel (Piazzesi
& Schenide ,2016). Thus, Iaco iello and Ne i (2010) ound ha U.S. housing p ices and
in es men we e highly p ocyclical and sensi i e o shocks. Ng and Feng (2016) emphasize
he ole o ex e nal shocks in small open economies, while Ge e (2020) ound a s ong
link be ween housing p ices and he cu en accoun , whe e he e ogeneous agen s eac
di e en ly o shocks. F om a di e en pe spec i e Be aja e al. (2019) and Eichenbaum e al.
(2022) ocused on he e ec i eness o mone a y policy and mo gage e inancing
9
, inding
ha such policies los impac in he medium e m. Duca e al. (2021) discuss he impac
Economies 2025,13, 207 7 o 46
o housing p ice cycles in he economy and how mac op uden ial policy can a ec his
ma ke and access o c edi . Simila ly, using he mechanisms o he inancial accele a o in
he housing sec o , Muellbaue (2024) s esses he necessi y o applying mac op uden ial
policy o sa egua d inancial s abili y linked o housing ma ke s.
3. The Model
The model ep esen s he case o an open economy wi h he e ogeneous households,
i ms, and inancial in e media ies (banks). Figu e A2 in Appendix Ap o ides a simpli ied
de ini ion o his en i onmen . Households consume goods and housing se ices,
10
o e la-
bo se ices o i ms, sa e in he o m o physical asse s (housing sha es) and bank deposi s,
and bo ow om banks.Fi ms p oduce inal goods and housing ha a e sold o households,
and in e media e goods ( ep oducible capi al) ha a e sold o i ms. Banks collec deposi s
om households, bo ow om o eign banks, and p o ide c edi o households and i ms.
Households own i ms and inancial in e media ies (banks). To examine he economic luc-
ua ions d i en by di e en sou ces, we conside wo ypes o shocks: domes ic (na ional)
and ex e nal ( o eign). Among na ional shocks, we include a p oduc i i y shock, a shock o
capi al quali y, and an idiosync a ic housing shock, which a ec s he alue
11
o he housing
in es men . Fo eign shocks a i e as pa o he global c edi cycle, a ec ing in e es a es
and domes ic and o eign liquidi y.
3.1. Households
The e is a la ge mass o households wi h in ini e li es, di e en ia ed by discoun a es
β∈(
0, 1
)
. Thus, among households, he e a e pa ien ones, wi h
β
close o 1, and impa ien
ones, wi h
β
close o 0. Households consume inal goods and housing se ices (
m
), supply
labo o inal p oduc ion (l ), and housing (lm). To sa e, households can acqui e housing
sha es (
m
) and bank deposi s (
d
). Thus, housing sha es p o ide housing se ices and can
be accumula ed o sa ing. Bank deposi s can only be accumula ed o sa ing pu poses
(see Quad ini,2020). In addi ion, wi hou he isk o de aul , bank deposi s a e conside ed
isk- ee in es men s. By con as , he e u ns o household’ sha es a e exposed o shocks;
hus, sa ing in physical asse s becomes a isky in es men .12
Households can inance housing sha es wi h hei own esou ces and bank c edi
bh
.
The la e includes any ype o inancial ag eemen wi h in e media ies.
13
By using hei
own esou ces, households become sa e s (
s
) and by using bank c edi , households a e
bo owe s (
b
). Al hough any ype o household can become a ne sa e o a ne bo owe ,
e idence shows ha impa ien agen s a e mo e p one o be bo owe s han he pa ien
ones (Tobin,1980). Thus, we assume ha pa ien agen s a e sa e s and impa ien agen s
a e bo owe s, wi h
βs>βb
. No ice he e ha because housing sha es can be conside ed
p ecau iona y sa ing, agen s can accumula e sha es ei he o p e en economic down u ns
o o compensa e o he lack o o he sa ing op ions in incomple e c edi ma ke s, which is
he case o se e al de eloping coun ies’ economies.14
Households ecei e income om labo , en ,
15
and non-dis ibu ed p o i s om i ms
and in e media ies. Sa e households ecei e en om hei housing sha es and bank
deposi s. Bo owe agen s ecei e en om housing sha es and ha e o epay hei deb s
a ime
. Gi en he u ili y unc ion
ui=u(Ci,
,
mi
,
l
i,
,
lm
i, )
, he op imiza ion p oblem o a
household o ype i={s,b} ollows
max
{Ci, ,l
i, ,lh
i, ,di, +1,mi, +1}
E0
∞
∑
=0
β
iu(Ci, ,mi ,l
i, ,lm
i, )
Economies 2025,13, 207 8 o 46
subjec o budge cons ain s:
Ci, +S +1mi, +1+di, +1=w
l
i, +wm
lm
i, +εi, mi, +Rd
di, +Πi, (1)
bi +1≤Φ(mi +1)(2)
whe e
Ci,
is he consump ion o he household
i
a ime
,
S +1mi, +1
is he expendi u e on
housing goods, whe e
S +1
ep esen s he p ices o housing in
+
1, and
mi, +1= ih +1
deno es he housing sha es
16
. On he igh -hand side o he equa ion,
l
i
is he supply
o labo in he sec o o inal p oduc ion,
lm
i
is he supply o labo in he housing sec o ,
w
l
i, +wm
lm
i,
deno es labo income coming om hese wo sec o s, and
εi, mi,
is he alue
o he housing sha e a ime
, whe e
εi, >
0 is an exogenous shock ha a ec s his alue.
17
The exp ession
Πi,
is he amoun o p o i s coming om i ms and in e media ies a his
ime. In he case o sa e agen s,
di, +1
a e bank deposi s a
+
1, and
Rd
= (
1
+id
−1)/π
deno es he a e o e u n o hese deposi s o e ime
, wi h (1
+π
) being he in la ion
a e in his economy. In he case o bo owe households,
bh
i, +1=−di, +1
is he deb
acqui ed o hese agen s a
+
1, and
Rl
bh
i, =−Rd
di,
is deb epaymen . The lending
in e es a e is deno ed by
Rl
= (
1
+il
−1)/π
. Equa ion (2) deno es a limi cons ain o
deb
b +1=−d +1
a ime
+
1, whe e
Φ(m +1)
depends on he sha e o housing
m +1
a
ha ime.
By sol ing he op imiza ion p oblem, he i s -o de condi ions o a household o
ype ia e
uCi, S +1=E {βi[uCi, +1εi, +1+umi, +1] + λ2 +1Φmi, +1}(3)
uCi, =E [βiuCi, +1Rbank
+1+λ2 +1](4)
ul
i,
ulm
i,
=w
wm
(5)
S +1=E {βi[uCi, +1εi, +1+umi, +1]/uCi, +λ2 Φmi, +1/uCi, }(6)
whe e Equa ion (4) is he Eule equa ion wi h a cons ain pa ame e
λ2 +1
. The in e es a e,
Rbank
+1
, becomes
Rd
+1
o sa e s and
Rl
+1
o bo owe s. In Equa ion (5),
ul
i,
/ulm
i,
ep esen s
he ma ginal a e o subs i u ion be ween labo in inal p oduc ion and housing, and
w
/wm
is he a io o wages be ween hese wo sec o s. No e ha wi h equal p e e ences o labo ,
wages should be iden ical in he wo ypes o p oduc ion a equilib ium. O he wise, wo k-
e s would always be willing o lea e by mo ing om one sec o o ano he . Equa ion (6)
shows ha housing p ices e ol e wi h ma ginal a es o u ili y o consump ion o goods,
uCi, +1
, and housing,
umi, +1
, and wi h he ma ginal alue o colla e al,
Φmi, +1
. Whe eas he
i s e m sugges s ha p ices a e d i en by sa ing mo i a ions, he second e m (
umi, +1
)
indica es ha housing p e e ences d i e hese p ices. Fo pa ien households, Equa ion (6)
emains
S +1=E {[(umi, +1/uCi, +1+εi, +1)(
1
/Rd
+1)]}
, which shows a nega i e ela ion-
ship be ween housing p ices and in e es a es. This esul is in line wi h Wood o d (2003)
o asse p ices and Quad ini (2020). I also coincides wi h he e idence obse ed in se e al
de eloping coun ies in he las yea s, whe e low-in e es - a e scena ios ha e accompanied
inc eases in housing p ices.
3.2. Fi ms
The e a e a la ge numbe o i ms ha p oduce consump ion goods, housing, and
in e media y goods in he o m o ep oducible capi al. Fi ms belong o households ha
ecei e any ype o p o i ha i ms can ob ain. The dis ibu ion ule o he p o i s o
Economies 2025,13, 207 15 o 46
duce liquidi y and deposi a es. This e ec is s onge unde Cou no compe i ion (see
Equa ion (30)), whe e deposi a es mo e in e sely o banks’ ma ke powe .
Unlike wha is discussed in he li e a u e, esul s show ha mo e capi alized banks
can ob ain highe en s bu also be p o ec ed in cases o de aul .
3.4. Ma ke -Clea ing Condi ions
3.4.1. Labo Ma ke
The labo ma ke clea s when a any ime
, he demand o labo in he p oduc ion o
inal goods l
and housing lm
equals he supply
l
+lm
=ls, +lb, (32)
whe e
ls, =l
s, +lm
s,
ep esen s he labo supply o sa e households and
lb, =l
b, +lm
b,
deno es he labo supply o bo owe s.
3.4.2. Physical Capi al Ma ke
The physical capi al ma ke clea s when a any ime
, he supply o capi al
k
equals
he demand.
k =k
+km
(33)
whe e, by combining Equa ions (17) and (27), we ob ain
q k =n +hk + (bk
+bm
)
. The
dynamics o he capi al hen emains
k +1= (1−δ)k +e
I
whe e δco esponds o he a e o dep ecia ion o ep oducible capi al.
3.4.3. Housing Ma ke
The housing ma ke clea s when a any ime , demand equals supply wi h
N
∑
j=1
jHj, =H (34)
3.4.4. Lending
The lending ma ke clea s when he supply o lending is equal o he demand.
b =bb
+bm
+bm
(35)
whe e supply sa is ies
bS
=nw + (
1
−ζ)d +ϑ e b∗
, and demand is equal o
bD
=bh
+
q k −(n +hk).
3.4.5. Final Ou pu
The ma ke o he inal ou pu clea s when agg ega e demand equals agg ega e supply, wi h
C +HI +e
I +k
2(π −1)2+µG=Y
whe e
C
is agg ega e consump ion, wi h
C =Cs, +Cb,
,
HI =S +1H +1−(
1
+ε)S H
deno es housing in es men ,
e
I =Φ(I /K )K
is in es men in ep oducible capi al,
k
2(π −1)2 ep esen s adjus men cos s, and µGis p oduc ion los due o i m de aul .

Economies 2025,13, 207 16 o 46
3.5. The C edi Cycle
Acco ding o he heo e ical model, he global c edi cycle can occu in he domes ic
economy h ough wo mechanisms: he liquidi y shock
θ
ha de e mines he supply o
o eign unds,
b∗
, and changes in he o eign in e es a e
R∗
; see Equa ions (26)–(29). In
his con ex , we analyze wo ex eme cases, c edi cons ain and c edi expansion, in which
he e ec on he local economy can be exace ba ed o smoo hened by he beha io o
domes ic shocks.
3.5.1. C edi Cons ain
A c edi cons ain can be caused by an ad e se shock (
θ→
0) ha occu s in he
economy a ime
, educing he supply o o eign liquidi y (
de
b∗<
0) and he supply o
domes ic c edi s, such ha db <0 (see Equa ion (27)).
In addi ion, i can be caused by a ise in he o eign in e es a e (
dR∗>
0
)
, which
leads o an inc ease in he cos o o eign deb , a ec ing p ices and agen decisions in he
domes ic economy.
The magni ude o he c edi cons ain depends in gene al on he se e i y o he
liquidi y shock
θ
and he capaci y o he domes ic economy o compensa e o o eign
liquidi y, which depends on banking capi al
nw
and ne households’ sa ing on bank
deposi s (1−ς)d.
Acco ding o Equa ions (1), (17), (20), and (24), a dec ease in c edi supply educes
he possibili y o households and i ms o inance in es men p ojec s, which has a di ec
impac on in e media e and inal p oduc ion. A he agg ega e le el, ou pu can dec ease.
Rega ding inc eases in o eign in e es
R∗
, Equa ions (28) and (29) show ha he lend-
ing in e es a e in he domes ic economy luc ua es di ec ly wi h his a e, a equilib ium,
whe e he e ec can be magni ied by an ad e se liquidi y shock
dθ<
0. Equilib ium
condi ions (3), (4), (21), and (25) show ha a ise in in e es a es a ec s housing p ices and
isk, modi ying households’ choices o consump ion and in es men .
Howe e , hese e ec s di e among households. Fo pa ien agen s (sa e s), highe
in e es a es lead o highe bank e u ns. Fo impa ien households, bo owing becomes
mo e expensi e. Consequen ly, al hough he subs i u ion e ec be ween cu en consump-
ion and sa ing can be nega i e o bo h ypes o agen s, he income e ec would be
posi i e o sa e agen s and nega i e o he bo owe ones. The e o e, while sa ing and
in es ing can inc ease o sa e agen s, in es men in housing sha es can dec ease o
bo owe agen s.
In he housing ma ke , because he amoun o non ep oducible capi al
hk
is con-
s an , c edi educ ion leads o a all in housing supply, inc easing p ices in he sho
e m. Howe e , Equa ion (6) sugges s a educ ion in housing p ices ollowing he cu en
con ac ion o demand. The ne e ec on p ices depends on which o hese wo e ec s is
mo e signi ican .
In e ms o inancial s abili y, he ise in in e es a es leads o a highe ma ginal cos
o lending o capi al- en ing i ms, inc easing he p obabili y o i m de aul . Con e sely,
as ex e nal inancing is mo e expensi e, i ms choose o inance in es men wi h in e nal
esou ces, dec easing le e age (see Equa ions (21) and (22)). Which o hese wo e ec s
p e ails depends on he i ms’ capaci y o inance in es men wi h in e nal unds
22
and he
magni ude o c edi cons ain s.
3.5.2. C edi Expansion
We assume he e ha he expansiona y cycle can be d i en by a posi i e shock
dθ/d >
0
(wi h
θ→
1) and/o by a all in he o eign in e es a e
dR∗/d <
0. Whe eas a posi i e
shock
θ
leads o an expansion in he domes ic supply o c edi , a all in in e es a e
R∗
Economies 2025,13, 207 17 o 46
educes he cos o o eign lending.
23
The mo e inancially in eg a ed an economy is wi h
he es o he wo ld, he mo e i can bene i om bo h ypes o shocks.
Wi h g ea e liquidi y, households and i ms would ha e mo e oppo uni ies o inance
hei consump ion and in es men s. Consequen ly, he demand o housing sha es can
inc ease o bo owe households. Howe e , supply can be es ic ed by he limi ed capaci y
o i ms o build new s uc u es.
24
Acco dingly, p ices can inc ease ollowing excess demand.
Fo i ms, cheape capi al inc eases hei oppo uni ies o inance in es men p ojec s. Thus,
g ea e liquidi y should be accompanied by an expansion o ou pu a he agg ega e le el.
Howe e , he educ ion in o eign in e es a es has di e en e ec s among households.
Fo sa e households, i would be mo e a ac i e o sa e in housing sha es han in bank
deposi s, leading hen o a educ ion in he supply o domes ic liquidi y.
Al hough he subs i u ion e ec leads bo h sa e and bo owe households o inc ease
hei consump ion and in es men , he income e ec di e s be ween hem. Whe eas in-
come can inc ease o bo owe agen s ollowing cheape deb , i would dec ease o emain
cons an o sa e agen s because o he all in he e u n on bank deposi s. The e o e,
he ne e ec on housing demand and income depends on how he in es men and con-
sump ion decisions o agen s espond o changes in in e es a es and on he e u ns o
housing in es men .
In he case o i ms, a dec ease in in e es a es leads en al capi al i ms o inance
p ojec s wi h ex e nal unds ins ead o in e nal unds. Consequen ly, le e age can inc ease
e en hough he p obabili y o de aul dec eases (see Equa ions (21) and (22)).
4. Mone a y Policy and he C edi Cycle
Using he amewo k o he heo e ical model, we analyze he e he ools o mone a y
policy o an economy exposed o he c edi cycle and domes ic shocks. We assume o
his pu pose ha he e is a go e nmen (a Cen al Bank) ha can in e ene by applying
con en ional and noncon en ional ools, such as mone a y easing, in e es a es, exchange
a es, and ese e a ios. To e alua e esul s, we conside wo cases: pe ec compe i ion
(as a benchma k) and Cou no compe i ion. In each case, we examine he beha io o he
economy unde pe ec o esigh when pa i y pu chasing powe (PPP) is main ained and
impe ec o esigh when PPP is no (Obs eld & Rogo ,1995).
Thus, de ining he eal isk- ee in e es a e a ime
25
such as
R = (
1
+i −1)/π
,
we ha e
1+i =R +1π +1(36)
whe e
i
is he nominal in e es a e in he small economy, and (1
+π +1)
is he in la ion a
ime
+
1 (see Sec ion 3.2). The e o e, assuming ha he lending in e es a e
Rl
app ox-
ima es he isk- ee in e es a e a ime
, we ha e
Rl
≃R = (
1
+i −1)/π
, wi h
il
≃i
.
Analogously, in he o eign economy, we ha e
1+i∗
=R∗
+1π∗
+1(37)
whe e
i∗
is he nominal o eign in e es a e, and (1
+π∗
+1)
deno es o eign in la ion.
In pe ec compe i ion, he ela ionship be ween he wo a es (
R
and
R∗
) is gi en by
Equa ion (28). When banks compe e unde Cou no compe i ion, he ela ionship ollows
Equa ion (29).
4.1. Pe ec Compe i ion
In a pe ec ly compe i i e ma ke , he lending a e
Rl
is equal o he o eign in e es
a e R∗ imes 1/θ, a equilib ium. The e o e, om Equa ions (36) and (37), we ha e:
Economies 2025,13, 207 18 o 46
1+i
π +1
=1+i∗
π∗
+1
1
θ
Taking he logs o bo h sides o his equa ion and eo ganizing, we ob ain26
e
i =e
i∗
+e
π +1−e
π∗
+1+Υ(38)
whe e Equa ion (38) ells us ha local and o eign in e es a es a e ela ed o in la ion a es
and he deg ee o ma ke openness, gi en by
Υ=log(1
θ)
, o any a iable
x
,
e
x=log(x).
To analyze policy in he p esence o he c edi cycle and shocks, we compa e equilib-
ium when he e is pe ec o esigh (and he law o one p ice holds) and when he e is
impe ec o esigh .
4.1.1. Pe ec Fo esigh
When he e is pe ec o esigh and he law o one p ice holds, he eal exchange a e
a ime emains he same as e =E P∗
/P =1. In his case, Equa ion (38) becomes
e
i =e
i∗ +e
γE +1+Υ (39)
whe e
γE =dlog E /d
deno es he nominal dep ecia ion a ime
and
e
γE =log[
1
+
γE /π∗
+1]
. Thus, capi al mobili y be ween he economy and he es o he wo ld is ela ed
o nominal dep ecia ion
γE
, o eign in la ion, and shock
θ
. As
γE +1
goes o ze o and
θ→
1,
e
i
app oaches
e
i∗
and he economy becomes pe ec ly in eg a ed wi h he es o he wo ld
(pe ec capi al mobili y). In ha case, he bene i s o inancial in eg a ion can be o se by a
educ ion in au onomy o he domes ic cen al bank. When
γE +1>
0 and/o
θ<
1, he
deg ee o inancial in eg a ion depends on he magni ude o cu ency dep ecia ion and
shock θ.
4.1.2. Impe ec Fo esigh
When he e is impe ec o esigh and he law o one p ice does no hold, he ela ion-
ship be ween in e es a es unde pe ec compe i ion becomes
E0e
i =E0{e
i∗
+ (e
γE′
+1) + Υ}(40)
whe e
E0
deno es expec a ions a ime
=
0, and
γE′
deno es he gap be ween nominal
and eal expec ed de alua ion,
γE′
=γE −γe
; see Appendix A.3 o a p oo . In his case,
he e is unce ain y abou he beha io o o eign in e es a es, de alua ion, and liquidi y
shock θ.
4.2. Cou no Compe i ion
When banks compe e unde a Cou no model, he ela ionship be ween he domes ic
and he o eign in e es a e is d i en by Equa ion (30), whe e he lending a e ollows
Rl
=R∗
(1/θ )Ξ,
wi h
Ξ=
1
/[
1
−1
NηD
l
]
. Then, assuming ha he lending a e app oaches
he isk- ee in e es a e, he ela ionship be ween he domes ic and he o eign in e es
a e is gi en by
1+i
π +1
=1+i∗
π∗
+1
1
θΞ
whe e he e m
Ξ
a ies wi h he deg ee o compe i ion o banks in he ma ke . As
ηD
l
goes o in ini y, he banking indus y app oaches pe ec compe i ion and he ela ionship
be ween in e es a es is gi en by Equa ions (36) and (37). O he wise, o small alues o
Economies 2025,13, 207 19 o 46
ηD
l
,
Ξ<
1, ac ing as a bu e on he in e es a e gap. Thus, aking he logs and eo ganizing,
he ela ionship be ween he wo a es iand i∗ emains
e
i =e
i∗
+e
π +1−e
π∗
+1+Υ +e
Ξ
whe e
e
Ξ=log(Ξ)
. Then, unde Cou no compe i ion, in addi ion o he in la ion gaps and
shock
θ
, he ela ionship be ween he wo in e es a es (
i
and
i∗
) depends on he deg ee o
ma ke powe o he banks, gi en by
Ξ
. As in Sec ion 4.1, o analyze policy in he p esence
o he c edi cycle and shocks, we compa e he in e es - a e equilib ium unde pe ec and
impe ec o esigh .
4.2.1. Pe ec Fo esigh
When he e is pe ec o esigh and he law o one p ice holds, he ela ionship be ween
he wo in e es a es unde Cou no compe i ion becomes
e
i =e
i∗ +e
γE +1+Υ +e
Ξ(41)
Consequen ly, i
e
Ξ→
0, ei he because he e is a la ge numbe o banks in he ma ke s
o he demand elas ici y goes o in ini y, Equa ion (40) app oaches he case o pe ec
compe i ion. O he wise, o
e
Ξ>
0, he isk- ee in e es a e in he domes ic economy
inc eases wi h he deg ee o ma ke powe in he banking indus y.
4.2.2. Impe ec Fo esigh
When he e is impe ec o esigh and he law o one p ice does no hold, Equa ion (40)
becomes
E0e
i =E0{e
i∗
+e
γE′
+1+Υ +e
Ξ}(42)
Then, as we can see in Equa ions (41) and (42), in bo h cases (pe ec and impe ec
o esigh ), in addi ion o he expec ed de alua ion and shock
θ
, unde Cou no compe i ion,
domes ic in e es a es de ia e om wo ld a es in he magni ude o he banks’ ma ke
powe o he small economy. The e o e, inancial in eg a ion (measu ed by he in e es
a e gaps) be ween his economy and he es o he wo ld is a ec ed by c edi ma ke
impe ec ions, which ha e implica ions o policy.
4.3. Mone a y Policy
We analyze he e con en ional and noncon en ional policy ools used by a cen al
bank. Fo his pu pose, we assume ha con en ional mone a y policy in he domes ic
economy and he cen al coun y ( es o he wo ld) ollows simple Taylo ules (see Ge le
e al.,2012), such as
i =il +aπ(π −πl ) + ay(y −yl ) + ϵ
i∗
=i∗
l +a∗
π(π∗
−π∗
l ) + a∗
y(y∗
−y∗
l ) + ϵ∗
whe e
il
(
i∗
l
) is he long- e m domes ic ( o eign) in e es a e, (1
+π )
(
(
1
+π∗
)
) deno es
he cu en domes ic ( o eign) in la ion, (1
+πl )
(
(
1
+π∗
l )
) ep esen s long- e m domes ic
( o eign) in la ion, and
(y −yl )
(
(y∗
−y∗
l )
) is he ou pu gap in he domes ic ( o eign)
economy, wi h
y =log(Y )
. The e ms
ϵ
and
ϵ∗
deno e mone a y shocks in he domes ic
and o eign economy, espec i ely, wi h E(ϵ ) = 0, E(ϵ∗
) = 0, and co (ϵ∗
,ϵ ) = 0.
Noncon en ional mone a y policy in he domes ic economy would imply quan i a i e
easing (o con ac ions), exchange a e in e en ions, and o he ools mean o a ec do-
mes ic c edi ma ke s, such as changes in ese e equi emen s
ζ
. In addi ion o di ec ly
in luencing he amoun o c edi s
b
, quan i a i e easing (o con ac ion) can modi y in e es
Economies 2025,13, 207 20 o 46
a es and exchange a es. The shock
θ
would also eac o hese mo emen s. In all o hese
cases, he e ec i eness o mone a y policy in he domes ic economy would be limi ed
by capi al mobili y. Fo example, i a posi i e mone a y shock hi he domes ic economy
(
∆ϵ>
0
)
, he capaci y o cen al bank in e en ion would be limi ed by o eign condi ions.
When he cen al coun y ( he o eign economy) does no ecei e shock (
∆ϵ∗=
0
)
, om he
Taylo ule we see ha he domes ic in e es a e
i
mus inc ease. Depending on he deg ee
o capi al mobili y, his in e en ion would cause he domes ic cu ency o app ecia e.
Howe e , i he expansi e domes ic shock is accompanied by a con ac i e o eign shock
(
∆ϵ∗<
0
)
, he e ec i eness o mone a y policy would be diminished by a educ ion in he
o eign in e es a e. Which o hese wo e ec s p e ails depends on he deg ee o capi al
mobili y, gi en by Equa ions (39)–(42).
5. Nume ical Analysis
To e alua e he p ima y analy ical p ope ies o he model, we u ilized he ools o
Ch is iano e al. (2014) and Bo a and Zhong (2023). Speci ically, we examined agen s’
in es men and consump ion decisions in an economy exposed o domes ic and ex e nal
shocks (c edi cycles). To calib a e he heo e ical model, we adop ed log-linea household
p e e ences as in Iaco iello (2005). In addi ion, we conside ed wo ypes o households,
pa ien and impa ien , ep esen ed by wo agen s. The pa ien (sa e ) agen can in es in
bank deposi s and housing sha es, whe eas he impa ien (bo owe ) agen can only in es
in housing sha es. The pa ien agen uses hei own unds o inance in es men s, while
he impa ien agen bo ows om banks.
In any pe iod, households ecei ed an idiosync a ic shock
ε
ha ep esen ed he alue
o hei housing sha es. In addi ion, hey we e exposed o p oduc i i y shocks, in e media e
p oduc ion shocks (capi al), and he o eign c edi cycle. Acco ding o Bo a and Zhong
(2023), we assumed ha his cycle en e ed he economy h ough a liquidi y shock
θ
and he
o eign in e es a e R∗, which modi ied he domes ic a e R27.
In e ms o he c edi cycle and i s agg ega e e ec s, we conside ed ou scena ios: a
closed economy (
θ=
0) wi h low in e es a es (Case 1); a pa ially open economy (
θ<
1)
wi h low in e es a es (Case 2); an open economy (
θ=
1) wi h high in e es a es (Case 3);
and a pa ially open economy, wi h high in e es a es (Case 4). Fo compa ison, we used a
baseline basic case, which assumed no adjus men cos s, an open economy, and low in e es
a es. Housing in es men decisions depended on wo ypes o shocks: (i) hose a ec ing
in e es a es (o igina ing om he es o he wo ld), and (ii) idiosync a ic shocks (
ε
) ha
de e mined he alue and e u n o housing in es men s.
Fo each scena io, we examined h ee policy in e en ions: bank capi aliza ion (
nw
),
exchange a e de alua ion (
∆e>
0), and changes in ese e a ios (
ζ
). Fu he mo e,
we e alua ed households’ wel a e by implemen ing bo owing limi s, a mechanism
28
o
smoo h housing p ices, and in oducing al e na i e inancial in es men s o impa ien
households (a isk- ee bond). We used Ma lab 2023(b), S a a 18, and R S udio 2024 o he
compu a ion and da a analysis.
Table 1p esen s he alues o he main pa ame e s de i ed om ou calcula ions and
he exis ing li e a u e (Ge e,2020;Quad ini,2020;Acoling e al.,2022). In he i s case,
a panel da ase o 45 de eloped and de eloping coun ies was used om 2001 o 2022.
Table A2 summa izes he key s a is ics. We used his da ase ’s mean alues and s anda d
de ia ions o gene a e in e es a es, housing p ices, and de aul a es. We pe o med a
eg ession analysis o suppo he indica o s discussed in he In oduc ion. As seen in
Tables A3–A5, he esul s we e e y obus , sugges ing s ong co ela ions be ween he
main endogenous a iables and he se o explana o y a iables. Fo example, we ob ained

Economies 2025,13, 207 21 o 46
an e o o
−
0.5 on a e age be ween he obse ed and p edic ed in e es a e gaps o a
selec ion o de eloping coun ies (see Table A6).
To e alua e changes in income dis ibu ion, we assumed ha ini ially bo h agen s
ecei ed an equal p opo ion o income and held he same sha e o housing in es men s,
hus
τ=
0.5 and
s= b=
0.5. Fo simplici y, he model was exp essed in pe capi a
e ms and uni s o consump ion goods. A he agg ega e le el, i beha ed simila ly o a
eal business cycle model bu wi h wo sec o s o inal p oduc ion: consump ion goods and
housing. Agen s’ wel a e de i ed om consump ion in bo h sec o s.
Table 1. Pa ame e alues.
Pa ame e Value Sou ce
Capi al Sha e in Final P oduc ion α0.35 Quad ini (2020)
Capi al Sha e in Housing P oduc ion γ0.40 Assump ion
Cons an P oduc i i y in Final P oduc ion A 10 Assump ion
Cons an P oduc i i y in Housing P oduc ion Z 10 Assump ion
Pa ien Household Discoun Fac o βs0.97 Ge e (2020)
Impa ien Household Discoun Fac o βb0.85 Ge e (2020)
Housing P e e ences in U ili y Func ion ψ0.15 Acoling e al. (2022)
Housing Sha es s0.50 Assump ion
Capi al U iliza ion in Final P oduc ion ksh 0.70 Da a
Bank Rese e Ra io ζ0.10 Da a
Adjus men Cos s ϕ0.20 Da a
Mean o Housing Shock (Impa ien Agen ) µb0.55 Da a
S anda d De ia ion Housing Shock (Impa ien Agen ) σb0.05 Da a
Mean o De aul Shock µx−0.10 Da a
S anda d De ia ion o De aul Shock σx0.10 Da a
Coe icien o Full Liquidi y θ1.00 Assump ion
No e: The main pa ame e alues we e ob ained om 45 de eloped and de eloping coun ies be ween 2001 and
2022. O he pa ame e s we e ob ained om Ge e (2020), Quad ini (2020), and Acoling e al. (2022).
Idiosync a ic shocks o housing and i ms,
ε
and
κ
, we e gene a ed acco ding o Bo a
and Zhong (2023), in which mean alues and s anda d de ia ions coincided wi h he da a
(see Table A2).
In pa icula , he shock
κ
in luenced he de aul a e o he en al i ms, ollowing
a log-no mal dis ibu ion (see Figu e A1). The pa ame e s
µκ
and
σκ
cha ac e ized ha
dis ibu ion. The ini ial domes ic liquidi y was es ablished wi h
nw =
0, and o eign c edi
was ixed a
b∗=
10. Two p oduc i i y g ow h a es we e conside ed: high (
gA =
0.03)
and low (gA =0.01).
The esul s a e summa ized in Tables 2–6, and Figu es 4–14. Fo cla i y, we summa-
ized he esul s o he ables in Figu es 15–17. In Table 2(basic case), we compa e he
agen s’ alloca ions unde ad e se (
εs<
1) and a o able idiosync a ic shocks (
εs>
1), see
panels A and B, espec i ely, whe e he da a indica e ha , al hough housing p ices (
S
)
end o inc ease unde low-in e es - a e scena ios, ad e se idiosync a ic shocks (
εs<
1)
cause he pa ien households o sa e mo e in bank deposi s han in housing sha es, he eby
inc easing domes ic liquidi y.
Highe domes ic liquidi y p o ides mo e esou ces o impa ien agen s o housing
in es men s, esul ing in highe income le els o hese agen s compa ed o pa ien house-
holds, especially when p oduc i i y g ow h is as e (panel A). In con as , a o able shocks
educe domes ic liquidi y, cons aining c edi a ailabili y o impa ien households and
i ms (panel B). This con ac ion edis ibu es weal h, inc easing income o sa e s and
dec easing i o bo owe s.
Economies 2025,13, 207 22 o 46
Table 2. Basic case ( ull liquidi y).
In e es Ra es P ices Housing Shocks Income In es men Liquidi y
Weal h Deposi s Lending Housing Sa e Bo owe Sa e Bo owe Sa e Bo owe Deposi s C edi s
Panel A
W Rd Rl S esebWs Wb msmbd b
θ=1;e=1;nw=0;gA=0.01
Mean 159.71 1.02 1.13 1.35 0.88 1.23 66.63 53.63 2.95 31.30 38.10 45.29
S d De ia ion 30.26 0.07 0.08 0.10 0.04 0.05 18.39 20.43 10.98 14.85 16.33 14.69
Ra e o G ow h 1.2% 0.4% 0.4% 0.6%
W Rd Rl S esebWs Wb msmbd b
θ=1;e=1;nw=0;gA=0.03
Mean 168.81 1.04 1.16 1.32 0.88 1.23 53.07 62.59 0.83 31.10 20.67 29.60
S d De ia ion 48.07 0.07 0.08 0.09 0.03 0.05 34.73 48.68 4.72 26.07 17.80 13.38
Ra e o G ow h 4.3% 0.4% 0.3% 0.7%
Panel B
W Rd Rl S esebWs Wb msmbd b
θ= 1; e = 1; nw = 10; gA = 0.01
Mean 169.78 1.02 1.14 1.56 1.11 1.23 70.90 53.39 35.46 24.33 5.64 16.08
S d De ia ion 32.05 0.07 0.07 0.11 0.05 0.05 18.14 16.63 17.40 10.96 15.09 13.58
Ra e o G ow h 1.2% 0.5% 0.5% 0.8%
W Rd Rl S esebWs Wb msmbd b
θ= 1; e = 1; nw = 10; gA = 0.03
Mean 173.82 1.01 1.13 1.57 1.11 1.23 74.66 40.77 39.45 13.60 3.12 12.81
S d De ia ion 36.78 0.06 0.07 0.10 0.04 0.05 30.39 23.22 19.73 9.19 11.77 10.59
Ra e o G ow h 2.9% 0.4% 0.4% 0.6%
No e: Table 2shows he esul s we ob ained by sol ing he model wi h discoun ac o s 0.97 and 0.85, o he pa ien and he impa ien households, espec i ely. In addi ion, agen s
di e ed in he alues o he housing shocks. In panel A, we assumed ze o banks’ capi aliza ion (nw = 0) and no in e en ion. In panel B, banks’ capi aliza ion was la ge han ze o
(nw = 10). In bo h cases, we compa ed a p oduc i i y g ow h o 1% wi h 3%.
Economies 2025,13, 207 23 o 46
Table 3. Case 1 (closed economy).
In e es Ra es P ices Housing Shocks Agen s’ Income Agen s’ In es men Liquidi y
Weal h Deposi s Lending Housing Sa e Bo owe Sa e Bo owe Sa e Bo owe Deposi s C edi s
Panel A
W Rd Rl S esebWs Wb msmbd b
θ= 0.51; e = 1; nw = 0; gA = 0.01
Mean 152.02 1.02 1.13 1.56 1.11 1.23 60.04 47.64 29.03 20.88 4.63 9.82
S d De ia ion 29.15 0.06 0.07 0.11 0.05 0.05 16.46 14.59 15.36 9.73 12.38 11.12
Ra e o G ow h 1.0% 0.3% 0.3% 0.7%
Panel B
W Rd Rl S esebWs Wb msmbd b
θ= 0.51, e = 2; nw = 0; z = 0.07; gA = 0.01
Mean 153.55 1.03 1.11 1.58 1.14 1.23 58.47 50.56 28.97 24.03 2.08 13.03
S d De ia ion 29.87 0.06 0.07 0.11 0.05 0.05 15.80 14.50 12.08 8.75 8.16 10.30
Ra e o G ow h 1.1% 0.4% 0.4% 0.5%
Panel C
W Rd Rl S esebWs Wb msmbd b
θ= 0.51, e = 2; nw = 0; z = 0.07; gA = 0.03
Mean 157.48 1.02 1.09 1.60 1.14 1.23 62.90 54.46 32.43 26.20 1.14 12.06
S d De ia ion 34.13 0.07 0.07 0.12 0.05 0.05 24.89 21.08 15.36 10.64 7.09 9.47
Ra e o G ow h 1.9% 0.5% 0.5% 0.5%
No e: Table 3shows he esul s we ob ained by sol ing he model wi h discoun ac o s 0.97 and 0.85, o he pa ien and he impa ien households, espec i ely. In addi ion, agen s
di e ed in he alues o he housing shocks. In panel A, we assumed ze o banks’ capi aliza ion (nw = 0) and no in e en ion. In panel B, we assumed an exchange a e de alua ion and a
ese e a io z = 0.07. Panel C di e s om panel B by conside ing a a e o p oduc i i y g ow h o 0.03.
Economies 2025,13, 207 24 o 46
Table 4. Case 2 (shock on o eign liquidi y).
In e es Ra es P ices Housing Shocks Agen s’ Income Agen s’ In es men Liquidi y
Weal h Deposi s Lending Housing Sa e Bo owe Sa e Bo owe Sa e Bo owe Deposi s C edi s
Panel A
W Rd Rl S esebWs Wb msmbd b
q = 0.51; e = 1; nw = 0; gA = 0.01
Mean 152.02 1.02 1.13 1.56 1.11 1.23 60.04 47.64 29.03 20.88 4.63 9.82
S d De ia ion 29.15 0.06 0.07 0.11 0.05 0.05 16.46 14.59 15.36 9.73 12.38 11.12
Ra e o G ow h 1.0% 0.3% 0.3% 0.7%
Panel B
W Rd Rl S esebWs Wb msmbd b
q = 0.51, e = 2; nw = 0; z = 0.07; gA = 0.01
Mean 153.55 1.03 1.11 1.58 1.14 1.23 58.47 50.56 28.97 24.03 2.08 13.03
S d De ia ion 29.87 0.06 0.07 0.11 0.05 0.05 15.80 14.50 12.08 8.75 8.16 10.30
Ra e o G ow h 1.1% 0.4% 0.4% 0.5%
Panel C
W Rd Rl S esebWs Wb msmbd b
q = 0.51, e = 2; nw = 0; z = 0.07; gA = 0.03
Mean 157.48 1.02 1.09 1.60 1.14 1.23 62.90 54.46 32.43 26.20 1.14 12.06
S d De ia ion 34.13 0.07 0.07 0.12 0.05 0.05 24.89 21.08 15.36 10.64 7.09 9.47
Ra e o G ow h 1.9% 0.5% 0.5% 0.5%
No e: Table 4shows he esul s we ob ained by sol ing he model wi h discoun ac o s 0.97 and 0.85, o he pa ien and he impa ien households, espec i ely. In addi ion, he economy
aced a o eign liquidi y shock and agen s di e ed in he alues o he housing shocks. In panel A, we assumed ze o banks’ capi aliza ion (nw = 0) and no in e en ion. In panel B, we
assumed an exchange a e de alua ion and a ese e a io z = 0.07. Panel C di e s om panel B by conside ing a a e o p oduc i i y g ow h o 0.03.
Economies 2025,13, 207 31 o 46
(a)
(b)
(c)
Figu e 10. Household decisions unde impe ec liquidi y: (a) consump ion; (b) in es men ; (c) hous-
ing in es men .

Economies 2025,13, 207 32 o 46
(a)
(b)
Figu e 11. Agen s’ wel a e wi h impe ec o eign liquidi y: (a) low in e es a es; (b) high in e es a es.
Figu e 12. Agen s’ wel a e wi h high in e es a es and policy.
Economies 2025,13, 207 33 o 46
Figu e 13. Agen s’ wel a e wi h high in e es a es and policy.
Figu e 14. Agen s’ wel a e wi h high in e es a es and policy.
In Case 2 (Table 4), he e ec s o he exchange a e de alua ion ( om
e=
1 o
e=
2)
and adjus men s o he ese e a io we e analyzed. The esul s showed ha , al hough
he imp o emen s we e modes , bo h he le el and he g ow h a e o agg ega e weal h
inc eased, and he income inequali y be ween households dec eased. Highe p oduc i i y
g ow h ampli ied hese bene i s.
Figu e 6a,b compa e agen s’ wel a e wi h ull o eign liquidi y, unde low- and high-
in e es - a e scena ios. In addi ion, Figu e 7a–c illus a e ha op imal in es men decisions
o housing, sa ings, and consump ion di e be ween agen s. The impa ien household
ends o consume mo e in he sho e m, while he pa ien household achie es highe
long- e m consump ion and in es men pa hs. Housing shocks induce signi ican ola ili y
in housing in es men o bo h ypes o agen s.
Du ing ad e se shocks o he o eign in e es a e (
R∗
), Cases 3 and 4 (Tables 5and 6)
show ha domes ic in e es a es spiked, anging be ween 1.23 and 1.33.29
Economies 2025,13, 207 34 o 46
Highe deposi and lending a es dep ess housing p ices: o sa e s, in es ing in bank
deposi s becomes mo e a ac i e han housing; o bo owe s, inc eased bo owing cos s
make housing in es men less a o dable. Al hough domes ic c edi emains abundan ,
high in e es a es limi bo owing o he impa ien household and i ms, educing housing
in es men , ou pu , and agg ega e weal h (see panels A in Tables 5and 6).
Figu e 15. Basic case—Table 2.
Figu e 16. Cases 1 and 2, Tables 3and 4: low in e es a es.
Economies 2025,13, 207 35 o 46
Figu e 17. Cases 3 and 4, Tables 5and 6: high in e es a es.
Mac op uden ial policies become mo e challenging unde high in e es a es, espe-
cially i a es a e exogenous. Measu es o inc ease domes ic liquidi y o limi o eign
capi al a e less e ec i e, and s a egies aimed a educing bo owing cos s, such as hose
implemen ed du ing he COVID-19 pandemic (see Ad ian e al.,2023), may be mo e ap-
p op ia e when he cen al bank has limi ed au onomy o he economy is expe iencing an
in la iona y phase.
Among he measu es, we educed he ese e a io om 0.07 o 0.03 and implemen ed
a mo e agg essi e de alua ion ( om
e=
1 o
e=
3), as shown in panels B o
Tables 5and 6,
espec i ely. As a esul , we obse ed a educ ion in lending a es by nea ly 0.8 poin s
compa ed o he esul s in panels A, along wi h inc eases in bo h he le els and g ow h
a es o agg ega e weal h. Simila ly o p e ious cases, he policy in e en ion led o a mo e
egali a ian income dis ibu ion, inc easing he income o he impa ien agen ela i e o
he pa ien agen . Fu he mo e, highe p oduc i i y a es con ibu ed o highe le els and
g ow h a es o weal h (see panel C in Tables 3–5).
Compa ing he ou cases analyzed he e, he esul s indica e ha pe iods o high
in e es a es a e mo e ad e se o he economy han pe iods o low in e es a es, especially
when in e es a es a e exogenous and no aligned wi h mac o undamen als. Figu e 6a,b
demons a e ha low in e es a es enable agen s o achie e highe and mo e s able le els
o wel a e han high in e es a es, pa icula ly when he e is ull o eign liquidi y.
Al hough housing p ices end o inc ease du ing pe iods o low in e es a es—causing
ola ili y— he scope o mac op uden ial policy is g ea e han unde high- a e scena ios.
Fo ins ance, measu es such as banks’ capi aliza ion and policies aimed a inc easing
domes ic liquidi y can be use ul o o se c edi cons ain s caused by ad e se o eign
shocks and he di e sion o inancial esou ces o he eal es a e sec o . In con as , du ing
pe iods o high in e es a es, policies ocused on educing deb cos s become mo e c i ical.
Rega ding ola ili y, Figu e 7a–c illus a e sho - e m luc ua ions in consump ion and
in es men decisions a he household le el, assuming ull o eign liquidi y (
θ=
1). This
ola ili y is exace ba ed in housing in es men , as shown in Figu e 7c.
Economies 2025,13, 207 36 o 46
When o eign liquidi y is es ic ed (
θ<
1), no only does e iciency dec ease due
o shocks, bu agg ega e weal h also becomes mo e ola ile as in e es a es inc ease (see
Figu es 8and 9a,b.
Op imal decision-making by agen s also changes in he p esence o impe ec o eign
liquidi y, as examined in Tables 3–5. Figu e 10a–c show ha he impa ien household ends
o o e -consume in he long e m, whe eas he pa ien household in es s mo e in housing.
Despi e inc eased ola ili y a high in e es a es, he pa ien household gene ally enjoys
highe wel a e han he impa ien household (see Figu e 11a,b).
In Figu es 12–14, we examined he wel a e o he agen s by applying di e en mea-
su es: a deb limi o he impa ien household, a smoo hing mechanism o housing p ices,
and a isk- ee bond o he impa ien household. We conside ed ull o eign liquidi y and
high in e es a es in he h ee cases. As illus a ed in he igu es, limi ing bo owing im-
p o ed wel a e o he impa ien household du ing down u ns o ad e se shocks; howe e ,
wi hou in e en ion, agen s we e be e o in all o he pe iods (see Figu e 12). A simila
imp o emen was obse ed when housing p ices we e smoo hed (see Figu e 13). When
he impa ien agen could sa e on a isk- ee asse as an al e na i e o housing, as shown in
Figu e 14, he wel a e imp o ed, and bo h agen s, he pa ien and he impa ien , bene i ed
om his in e en ion. These esul s can ein o ce hose p e iously ound. As Figu es 15–17
summa ize, agen s’ wel a e inc eased wi h domes ic liquidi y in he h ee scena ios: basic
case (Table 2), low in e es a es (Tables 3and 4), and high in e es a es (Tables 5and 6).
6. Conclusions
Depa ing om he exis ing business cycle li e a u e on inancial ma ke ic ions, we
de eloped a gene al equilib ium model o analyze he dynamics o housing and he mac oe-
conomy o an open economy exposed o he global c edi cycle. Conside ing he e ogeneous
agen s (pa ien and impa ien ) and wo ypes o sa ings ins umen s, bank deposi s, and
eal es a e, his amewo k can be sui able o economies wi h di e en deg ees o domes ic
inancial de elopmen and a a ie y o in eg a ion s a us wi h in e na ional ma ke s.
Among o he con ibu ions, his a icle de eloped a dynamic mac oeconomic model
inco po a ing an embedded housing p oduc ion sec o wi h impe ec compe i ion in
he banking sec o . In he model, in es men e u ns we e unce ain, and demand was
endogenously de e mined by households’ p e e ences, ela i e p ices, in e es a es, and
income. This s uc u e enabled he model o cap u e s ylized housing and agg ega e
dynamics obse ed in ad anced and eme ging economies.
Second, he analysis iden i ied he condi ions unde which domes ic liquidi y-
enhancing policies—such as bank capi aliza ion, ese e a ios, and cu ency de alua ion—
succeeded o ailed in s abilizing in es men and ou pu . In pa icula , he e ec i eness
o hese ools is c i ically dependen on he le el o o eign in e es a es and liquidi y. In
high-in e es - a e scena ios, al e na i e measu es, such as s abilizing he p ice o housing
and isk- ee bonds, a e p e e able.
Thi d, he esul s demons a ed obus indings ac oss a ious model calib a ions
and highligh ed he asymme ic e ec s o o eign liquidi y shocks. Fo eign liquidi y can
ein o ce o o e ide domes ic policy ins umen s, depending on he le el o inancial
de elopmen . These indings imply ha capi al con ol measu es should be designed by
conside ing he ex e nal in e es a e en i onmen and he dep h o he domes ic ma ke ,
pa icula ly hose ha a ge in low es ic ions. Combining mic o- and mac o-le el in-
e en ions would be p e e able, especially o de eloping coun ies wi h less de eloped
inancial ma ke s.
Consequen ly, acing mul iple challenges, hese coun ies mus a enua e ex e nal
shocks and de elop local inancial ma ke s. They mus also con ol deb and gua an ee ac-

Economies 2025,13, 207 37 o 46
cess o ma ke housing o middle- and low-income g oups. P omo ing domes ic sa ings in
o he ins umen s han eal es a e would help households and en ep eneu s a enua e p ice
luc ua ions. Fo example, de eloping a ma ke o bonds, such as g een bonds, in ech,
and mic o inance, would complemen o he measu es such as go e nmen subsidies.
Some o hese measu es we e adop ed du ing he COVID-19 pandemic, al hough
signi ican le els o go e nmen and p i a e deb accompanied hem. Today, he challenge
is o gua an ee mac oeconomic and inancial s abili y wi h an a o dable ma ke .
These no el insigh s help explain he housing dynamics and poo g ow h pe o -
mance obse ed in se e al de eloping coun ies du ing low o eign in e es a es. This is
pa icula ly ele an in e ol ing policy shocks in majo economies.
The policy design would be limi ed because we did no include a seconda y inancial
ma ke in ou model, and o he cha ac e is ics ha a ec he dissemina ion o shocks ( o
example, geog aphical aspec s, clima e change, and echnological shocks). Fu u e esea ch
should add ess hese aspec s and a wide a ie y o ansmission mechanisms.
Au ho Con ibu ions: Concep ualiza ion, M.E.F.; Me hodology, M.E.F.; Valida ion, D.R.G. and
M.E.F.; Fo mal analysis, M.E.F.; In es iga ion, M.E.F. and D.R.G.; W i ing—o iginal d a p epa a ion,
M.E.F. and D.R.G.; W i ing— e iew and edi ing, D.R.G. and M.E.F.; Supe ision, M.E.F. All au ho s
ha e ead and ag eed o he published e sion o he manusc ip .
Funding: This esea ch ecei ed no ex e nal unding.
Da a A ailabili y S a emen : Da a is con ained wi hin he a icle.
Acknowledgmen s: We app ecia e he commen s and sugges ions o he con e ence pa icipan s a
he Wo ld Finance Con e ence, Mal a 2020, and he semina pa icipan s a he Chilean Cen al Bank,
he Uni e sidad de Chile, and he Uni e sidad Albe o Hu ado. The au ho s hank Eloy Al a ado
o compu a ional solu ions and Alexis Al a o o esea ch assis ance, Uni e sidad Técnica Fede ico
San a Ma ía.
Con lic s o In e es : The au ho s decla e no con lic o in e es .
Appendix A. P oo s
Appendix A.1. The Phillips Cu e
F om Sec ion 3.2.1, we ha e he p oblem:
max E0{
∞
∑
=0
Λi,0, [( Pj,
P
−mc )yj, −λ
2(Pj,
Pj, −1
−1)2Y }
and he i s -o de condi ions (FOCs),
π (1+π ) = 1
λ(1− + mc ) + βE (1+π +1)π +1Y +1/Y (A1)
whe e
Pj,
P =π
and
λ
is he adjus men cos s’ pa ame e . In he s eady s a e, we ha e
he ollowing:
(1)
1
+π =
1, hen
π =
0, which implies
Pi =P =Pss
, o all and i = 1. ..n. This
implies ha p ices a e cons an in he s eady s a e.
(2) Wi h cons an p ices, we ha e he ollowing:
π =π +1=πss =
0 in he s eady s a e, and om FOCs, he ma ginal cos o
p oduc ion ollows
mcss = −1
(A2)
Economies 2025,13, 207 38 o 46
Pe o ming
c
mc = (mc −mcss )/mcss
and
κ= ( −
1
)/λ
, wi h a li le algeb a,
we ob ain
κb
mc = (1− + mc )/λ
Linea izing he FOCs a ound he s eady s a e and doing a li le algeb a, he Phillips
cu e becomes (see Aoki e al.,2018)
b
π =κc
mc +βE b
π +1(A3)
P oo . wi h bκ= (x−xss)/xss.
Appendix A.2. Ren al Capi al
F om Sec ion 3.2.2, he p oblem o a en al capi al i m j ollows:
max
{k
,b
,κj, +1}
E Λi, , +1{(1−Γ(κj, +1))Rk
+1q kj, }
subjec o
q k
j, =nj, +bk
j, (A4)
and he lende ’s pa icipa ion cons ain
E {G(κj, +1)Rk
+1q k
j, } ≥ Rl
bk
j, (A5)
Using
G(κj, +1) = Γ(κj, +1)−µΓu(κj, +1)
and sol ing h ough a Lag angian unc ion,
we ob ain
L=E Λi, , +1{(1−Γ(κj, +1))Rk
+1q kj, }+λ1 [nj, +bk
j, −q k
j, ]−λ2 [Rl
bk
j, −G(κj, +1)Rk
+1q k
j, ]
Conside he ollowing:
(i) ∂L/∂k
j, =0;
(ii) ∂L/∂bk
j, =0;
(iii) ∂L/∂κj, +1=0.
Then, he FOCs become
Rk
+1=Θ(κj, +1)Rl
(A6)
P oo .
wi h
Θ(κj, +1) = Γ′(κj, +1)
[Γ′(κj, +1)G(κj, +1)+G′(κj, +1)(1−Γ(κj, +1))] >
0, which ep esen s he
isk ela ed o en al-capi al in es men .
Appendix A.3. In e es Ra es
F om he de ini ions o Sec ions 3.2 and 3.3, we see ha he nominal lending in e es
a e ollows
(1+il
) = Rl
+1π +1(A7)
wi h
b
π +1=κc
mc +1+βE b
π +2
. Taking he logs o bo h sides o Equa ion (46), we ob ain
log (1+il
) = log Rl
+1+log π +1.
Unde pe ec compe i ion, we ha e
Rl
=Rl
/θ
; hus,
(
1
+il
)/π +1= (
1
/θ)(
1
+
i∗
)/π∗
+1
, whe e
i∗
is he nominal o eign in e es a e, and
π∗
+1
is o eign in la ion. Taking
he logs o bo h sides o his exp ession, we ob ain he ollowing:
e
i =e
i∗ +e
γE +1+Υ (A8)
Economies 2025,13, 207 39 o 46
whe e
e
i =log(
1
+il
)
,
e
i∗ =log(
1
+i∗
)
, and
γE +1=γe +1+ (π∗
+1−π +1)
, which deno es
he expec ed de alua ion a ime
+
1, wi h
γe +1
being he eal de alua ion a his ime.
Υ =log(1/θ ).
In he case o Cou no compe i ion, when he e is pe ec o esigh , local in e es a es
beha e as
e
i =e
i∗ +e
γE +1+Υ +e
Ξ
P oo .
whe e
e
Ξ=
1
/[
1
−1
NηD
l
]
deno es he deg ee o ma ke powe in he banking sec o .
Table A1. Housing de ici s in selec ed coun ies.
De eloped Coun ies
De ici Popula ion Financing
(Millions) (%)
Finland 0.6 5.6 70
Ge many 0.7 83.3 90
G eece 0.2 10.4 70–75
Po ugal 0.1 10.9 60–70
Uni ed Kingdom 4.3 68.4 80–95
De eloping Coun ies
De ici Popula ion Financing
(Millions) (%)
A gen ina 4.0 46.2 50–70
B azil 5.8 215.3 80
Chile 0.6 19.6 75
Colombia 5.2 51.9 70
Mexico 2.2 127.5 80–90
India 47.0 1417 85
No e: Housing de ici can include uni s in poo condi ions o o poo quali y. Sou ce: Bank o Mexico (2024);
Cen al Bank o A gen ina (2024); Casen (2022); Cen al Bank o B azil (2024); Cen al Bank o Chile (2024); Cen al
Bank o Colombia (2024); DANE (2024); Ins i u o B asilei o de Geog a ia e Es a is ica (2024); Mo do In elligence
(2024); OECD (2023); Wo ld Bank (2021).
Table A2. Main basic s a is ics.
Va iable
Obse a ions
Mean
S d. De .
Min Max
Cen al Bank In e es Ra e 946 5.7 12.3 0.0 316.0
C edi o GDP (Pe cen age) 926 107.0 69.5 8.0 288.5
Cu en Accoun o GDP (Pe cen age) 985 −0.5 5.8 −30.9 28.0
Deposi In e es Ra e (Pe cen age) 862 4.7 6.4 0.0 74.7
De alua ion Ra e (Pe cen age) 944 1.3 15.0 −272.2 120.0
Fed Fund In e es Ra e (Pe cen age) 990 1.4 1.5 0.1 5.0
Fo eign Rese es (USD Millions) 986 108,160 392,610 195 3,900,000
Gap Be ween In e es Ra es 946 4.3 12.3 −2.2 314.3
Household Deb o GDP (Pe cen age) 771 50.1 31.0 2.5 137.4
Index o Housing Cos (Base Yea = 2015) 667 100.7 24.3 12.5 178.5
In la ion Ra e (Pe cen age) 914 4.1 5.3 −3.4 93.6
Lending In e es Ra e (Pe cen age) 830 8.9 10.5 0.0 118.4
Money Ma ke In e es Ra e (Pe cen age) 745 4.4 6.2 −0.6 86.1
Nominal Exchange Ra e (Domes ic Cu ency o USD)
989 536.2 1929.4 0.5 15,731
Nonpe o ming Loans (Pe cen age o Deb ) 543 4.1 5.3 0.2 45.6
Openness Index 2001–2022 940 69.7 28.7 0.0 100.0
De eloped Coun ies 396 87 10 29 100
De eloping Coun ies 544 57 32 0 100
Pe Capi a GDP (Cons an USD o 2015) 987 24,031 29,724 263 288,275
P i a e deb o GDP (Pe cen age) 771 80.0 40.4 12.5 185.3
Economies 2025,13, 207 40 o 46
Table A2. Con .
Va iable
Obse a ions
Mean
S d. De .
Min Max
Real GDP g ow h 989 2.8 3.6 −21.4 14.0
To al Fac o P oduc i i y (Ra e o G ow h) 665 1.0 0.1 0.8 1.2
Unemploymen Ra e 871 8.0 5.0 0.0 33.0
U.S. Cen al bank Ra e 990 1.5 1.6 0.1 5.3
VIX 990 20.2 6.2 11.1 31.8
Yea 990 2012 6 2001 2022
No e: Index o housing cos is an index numbe calcula ed by he OECD ha measu es he p ices o esiden ial
p ope ies o e ime. The gap be ween in e es a es is ob ained as he di e ence be ween each coun y’s cen al
bank in e es a e and he U.S. policy a e (Fede al Fund Ra es). Openness index (o e all openness index) p o ides
in o ma ion on he s a e o openness o he capi al accoun based on 12 ypes o asse ca ego ies, whe e one implies a
ully libe alized economy, and ze o implies a closed economy. Sou ce o da a: BIS (2023); IMF (2023); OECD (2023).
Table A3. Financial in eg a ion.
yi = ai+ bXi + i
(A): All Coun ies
2001–2022 2001–2014 2015–2022
Dependen Va iable: D log C edi /GDPi
D log C edi /GDPus 0.5196 *** 0.4549 *** 0.3810 ** 0.3474 ** 1.0388 *** 1.1067 ***
(0.1066) (0.0880) (0.1427) (0.1244) (0.1394) (0.0927)
D log GDPpc −0.2445 *** −0.2677 *** −0.2963 *** −0.3221 *** −0.2145 *** −0.2044 ***
(0.0248) (0.0257) (0.0355) (0.0367) (0.0309) (0.0356)
Adj R211% 11% 28%
Chi2142 80 314
Obse a ions 881 881 543 543 338 338
(B): De eloped Coun ies
2001–2022 2001–2014 2015–2022
Dependen Va iable: D log C edi /GDPi
D log C edi /GDPus 0.7553 *** 0.6814 *** 0.5978 *** 0.5412 *** 1.2064 *** 1.1491 ***
(0.0757) (0.0577) (0.0826) (0.0679) (0.1371) (0.0909)
D log GDPpc −0.0793 *** −0.0732 ** −0.0922 *** −0.0839 ** −0.1164 *** −0.2652 ***
(0.0223) (0.0236) (0.0274) (0.0284) (0.0344) (0.0495)
Adj R221% 18% 39%
Chi2141 64 260
Obse a ions 377 377 233 233 144 144
(C): De eloping Coun ies
2001–2022 2001–2014 2015–2022
Dependen Va iable: D log C edi /GDPi
D log C edi /GDPus 0.2298 0.1773 0.0573 0.0381 0.8373 *** 1.0595 ***
(0.1745) (0.1468) (0.2351) (0.2064) (0.2214) (0.1502)
D log GDPpc −0.3202 *** −0.3479 *** −0.3757 *** −0.4088 *** −0.2798 *** −0.1947 ***
(0.0361) (0.0372) (0.0515) (0.0533) (0.0455) (0.0491)
Adj R213% 14% 27%
Chi295 59 145
Obse a ions 504 504 310 310 194 194
No e: Table A3 shows he co ela ion be ween a ia ions in he a io o c edi o GDP o each coun y and
co esponding changes in he U.S. a io. We es ima ed he eg ession u ilizing changes in pe capi a GDP as a
con ol a iable. In panel A, he able shows he co ela ions o he ull sample o da a, and panel B shows he
co ela ions o he g oup o de eloping coun ies. The coe icien s indica e he di ec ion and he impo ance o he
co ela ion. Fo example, 0.5196 in column 1 o panel A (2001–2022) indica es ha each coun y’s c edi - o-GDP
a io inc eases 0.52 pe cen (app oxima ely) when he U.S. a io inc eases 1 pe cen . In column 5, he coun y
´
s
a io on he igh inc eases by 1.03 pe cen . In columns 2, 4, and 6, Chi2 is he alue o he Wald es . **: signi icance
a 5%; ***: signi icance a 1%.