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Sudden Stops, Financial Crises, and Leverage Author(s): Enrique G. Mendoza Reviewed work(s): Source: The American Economic Review, Vol. 100, No. 5 (DECEMBER 2010), pp. 1941-1966 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/41038751 . Accessed: 04/03/2013 15:09
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American Economic Review (December 100 2010): 1941-1966 http://www.aeaweb.org/articles.php?doi=10.1257/aerJ00.5.1941

Sudden Stops, FinancialCrises, and Leverage
ByEnrique G. Mendoza*
Financial crasheswerefollowedby deep recessions theSudden Stops of in economies. equilibrium An businesscyclemodelwitha collateral emerging constraint this as and of explains phenomenon a result theamplification asymthatthe constraint inducesin the responsesof macroto metry aggregates risesduring and whenitrisesenough triggers it shocks. Leverage expansions, theconstraint, that credit and theprice causinga Fisherian deflation reduces and factorallocations and quantity collateralassets. Output of fall because is access to working capitalfinancing also reduced.Precautionary saving

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