The paper by Gilchrist, Schoenle, Sim, and Zakrajsek (2015) emphasizes the role of higher mark-ups of liquidity-constrained firms. In particular it shows that facing financial distress in the absence of devaluation, firms in financially weak countries have an incentive to raise their prices to cope with liquidity shortfalls.
As you may recall, it is about three years since we launched (in this very Auditorium on July 6, 2004) the 13-point reform agenda designed to restructure, refocus and strengthen the Nigerian banking and financial system. At that meeting, I observed that the agenda constituted “Phase One” of the reforms.