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7<
The Boom-Bust Cycle in Middle Income Countries
Real exchange rate appreciation
Real GDP growth
0.150
0.1
0.100
0.05
0.050
0
-0.05
0.000
t-3
t-2
t-1
t
t+1
t+2
t+3
-0.050
t-3
t-2
t-1
t
t+1
t+2
t+3
-0.100
-0.1
-0.150
-0.15
-0.200
-0.2
-0.250
-0.25
-0.300
Real credit growth
Credit-to-deposits ratio
0.150
0.050
0.100
0.040
0.050
0.030
0.000
-0.050
t-3
t-2
t-1
t
t+1
t+2
t+3
0.020
-0.100
0.010
-0.150
-0.200
0.000
-0.250
-0.010
-0.300
-0.020
-0.350
t-3
t-2
t-1
t
t+1
t+2
t+3
-0.030
N-to-T output ratio
Terms of Trade
0.060
0.120
0.040
0.100
0.020
0.080
0.000
0.060
-0.020
0.040
t-2
t-1
t
t+1
t+2
t+3
-0.060
0.000
-0.020
t-3
-0.040
0.020
t-3
t-2
t-1
t
t+1
t+2
-0.080
t+3
-0.100
-0.040
-0.120
-0.060
Investment/GDP
0.060
0.050
0.040
0.030
0.020
0.010
0.000
-0.010
-0.020
-0.030
-0.040
-0.050
t-3
t-2
t-1
Consumption/GDP
t
t+1
t+2
0.030
0.025
0.020
0.015
0.010
0.005
0.000
-0.005
-0.010
-0.015
-0.020
-0.025
t+3
Iljxuh ;14=
83
t-3
t-2
t-1
t
t+1
t+2
t+3
Equilibrium in the Nontradables’ Market
Demand
A
B
Supply
qt
1/[Real Exchange Rate]
Iljxuh ;15=
84
The Model Economy
Nontradables Output
Safe
Equilibrium
7.5
6.5
Risky
Equilibrium
5.5
Pareto
Optimal Path
4.5
3.5
0
5
Time
10
1/Real Exchange Rate
600
400
200
0
0
5
Time
10
Debt Burden
3000
2000
1000
0
0
5
Time
10
Note: The parameters used are e_0=8.1417, q_0=5, e=1.6417, alpha=0.9598,
theta=1.0527, d=8, g=0.7783, beta=0.9434, h=1.01, T=8, d_hat=d*(1+g)^T.
Iljxuh ;16=
85