Exchange Rate Regime And Household’s Choice of Debt

This paper looks at the impact of the exchange rate regime and the household’s choice of debt. One of the characteristics of economic transition in eastern European countries was an increase in overall debt holding. Standard economic theory assumes the relationship S=I. In this relationship the households should use debt only for purchases of durable goods; however in some eastern European countries there was a large increase in consumer loans which are not recognized under standard no-ponzi assumption of economic models. This paper aims to investigate precisely that case: increase in household’s debt which is used only for living above their means. The paper hypothesizes and proves a significant impact on the choice of the amount the debt the households are willing to hold is due to the choice of the exchange rate regime made by the central bank. The paper investigates two main cases: stable exchange rate regime (exchange rate regime with FX risk) and variable exchange rate regime (exchange rate regime without exchange rate risk). Behavior of the households is different under each exchange rate regime can be seen in the model and in the data as well.

A Credit Policy Framework for Entrepreneurship

This paper looks at the connection between credit and entrepreneurship. The main focus of the paper is on the recognition that new entrepreneurs need financial help in order to start their ventures. To be able to do that they need to obtain financing. This in developed markets is done through the capital markets, but in bank centric economies where most funding comes from banks entrepreneurial financing can be challenging. This paper recognizes this constraint and proposes a credit policy framework which would stimulate entrepreneurial financing