Banking Productivity and Economic Fluctuations: Colombia 1998-2000
AbstractThis paper builds a general equilibrium, financial accelerator model hat incorporates an explicit technology for the intermediary sector. Acredit multiplier emerges because of a borrowing constraint that is a function of asset prices, internal funds and lending rates. With this financial friction I show that small changes in the productivity and intermediation costs of banks generate large and persistent fluctuations in economic activity. The transmission channel relies on the role that assets and internal funds play as collateral. After a negative shock hits financial intermediation productivity, the resulting credit crunch and economic slowdown induce a fall in asset prices and internal fund accumulation. This further modifies the present and future volume of collateral, thereby amplifying and propagating the initial shock. The paper argues that changes in banking regulation in Colombia in the late 1990’s increased intermediation costs, reduced banking productivity and induced a credit multiplier story that fits the theoretical model presented here. This new regulation enhanced the credit crunch and economic slowdown that was already underway. Colombian data on loan/deposit interest rate spreads, credit volume, asset prices and economic activity support this argument.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by UNIVERSIDAD DE LOS ANDES-CEDE in its journal REVISTA DESARROLLO Y SOCIEDAD.
Volume (Year): (2002)
Issue (Month): ()
Contact details of provider:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andrés Felipe Arias, 2000. "The Colombian Banking Crisis: Macroeconomic Consequences And What To Expect," BORRADORES DE ECONOMIA 003573, BANCO DE LA REPÚBLICA.
- Berg, Sigbjorn Atle & Forsund, Finn R. & Hjalmarsson, Lennart & Suominen, Matti, 1993. "Banking efficiency in the Nordic countries," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 371-388, April.
- Ricardo Caballero & Arvind Krishnamurthy, 1999.
"Emerging Market Crises: An Asset Markets Perspective,"
99-23, Massachusetts Institute of Technology (MIT), Department of Economics.
- Ricardo J. Caballero & Arvind Krishnamurthy, 1998. "Emerging Market Crises: An Asset Markets Perspective," NBER Working Papers 6843, National Bureau of Economic Research, Inc.
- Ricardo Caballero & Arvind Krishnamurthy, 1998. "Emerging Market Crises: An Asset Markets Perspective," Working papers 98-18, Massachusetts Institute of Technology (MIT), Department of Economics.
- Arvind Krishnamurthy & Ricardo J. Caballero, 1999. "Emerging Markets Crisis - An Asset Markets Perspective," IMF Working Papers 99/129, International Monetary Fund.
- Alam, Ila M Semenick, 2001. "A Nonparametric Approach for Assessing Productivity Dynamics of Large U.S. Banks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(1), pages 121-39, February.
- Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2000.
"A simple model of monetary policy and currency crises,"
European Economic Review,
Elsevier, vol. 44(4-6), pages 728-738, May.
- Philippe AGHION & Philippe BACCHETTA & Abhijit BANERJEE, 1999. "A Simple Model of Monetary Policy and Currency Crises," Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP) 9914, Université de Lausanne, Faculté des HEC, DEEP.
- Philippe Aghion & Philippe Bacchetta & Abhijit Banerjee, 1999. "A Simple Model of Monetary Pollicy and Currency Crises," Working Papers 99.05, Swiss National Bank, Study Center Gerzensee.
- Andrés Felipe Arias, . "The Colombian Banking and Crisis: Macroeconomic Consequences and What to Expect," Borradores de Economia 157, Banco de la Republica de Colombia.
- John H. Boyd & Bruce D. Smith, 1995.
"The evolution of debt and equity markets in economic development,"
542, Federal Reserve Bank of Minneapolis.
- Bruce D. Smith & John H. Boyd, 1998. "The evolution of debt and equity markets in economic development," Economic Theory, Springer, vol. 12(3), pages 519-560.
- Carlstrom, Charles T & Fuerst, Timothy S, 1997.
"Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis,"
American Economic Review,
American Economic Association, vol. 87(5), pages 893-910, December.
- Ryo Kato, 2002. "Matlab code for the Carlstrom-Fuerst AER (1997) model," QM&RBC Codes 112, Quantitative Macroeconomics & Real Business Cycles.
- Charles T. Carlstrom & Timothy S. Fuerst, 1996. "Agency costs, net worth, and business fluctuations: a computable general equilibrium analysis," Working Paper 9602, Federal Reserve Bank of Cleveland.
- Joydeep Bhattacharya & Mark G. Guzman & Elisabeth Huybens & Bruce D. Smith, 1995.
"Monetary, Fiscal, and Bank Regulatory Policy in a Simple Monetary Growth Model,"
9501, Centro de Investigacion Economica, ITAM.
- Bhattacharya, Joydeep & Huybens, Elisabeth & Guzman, Mark G. & Smith, Bruce D., 1997. "Monetary, Fiscal, and Bank Regulatory Policy in a Simple Monetary Growth Model," Staff General Research Papers 5136, Iowa State University, Department of Economics.
- Bhattacharyya, Arunava & Lovell, C. A. K. & Sahay, Pankaj, 1997. "The impact of liberalization on the productive efficiency of Indian commercial banks," European Journal of Operational Research, Elsevier, vol. 98(2), pages 332-345, April.
- Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999.
"The financial accelerator in a quantitative business cycle framework,"
Handbook of Macroeconomics,
in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393
- Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
- Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
- Allen N. Berger & David B. Humphrey, 1992. "Measurement and Efficiency Issues in Commercial Banking," NBER Chapters, in: Output Measurement in the Service Sectors, pages 245-300 National Bureau of Economic Research, Inc.
- Philippe Aghion & Philippe Bacchetta & Abhijit Banerjee, 1999.
"Capital Markets and the Instability of Open Economies,"
99.01, Swiss National Bank, Study Center Gerzensee.
- Philippe Aghion & Philippe Bacchetta & Abhijit Banerjee, 2000. "Capital Markets and the Instability of Open Economies," Working Papers 99.01 update, Swiss National Bank, Study Center Gerzensee.
- Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 1999. "Capital Markets and the Instability of Open Economies," CEPR Discussion Papers 2083, C.E.P.R. Discussion Papers.
- Bernanke, Ben & Gertler, Mark, 1990.
"Financial Fragility and Economic Performance,"
The Quarterly Journal of Economics,
MIT Press, vol. 105(1), pages 87-114, February.
- Allen N. Berger & Loretta J. Mester, 1999.
"What explains the dramatic changes in cost and profit performance of the U.S. banking industry?,"
Finance and Economics Discussion Series
1999-13, Board of Governors of the Federal Reserve System (U.S.).
- Allen N. Berger & Loretta J. Mester, 1999. "What explains the dramatic changes in cost and profit performance of the U.S. banking industry?," Working Papers 99-1, Federal Reserve Bank of Philadelphia.
- Allen N. Berger & Loretta J. Mester, 1999. "What Explains the Dramatic Changes in Cost and Profit Performance of the U.S. Banking Industry?," Center for Financial Institutions Working Papers 99-10, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Ben S. Bernanke, 1983.
"Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression,"
NBER Working Papers
1054, National Bureau of Economic Research, Inc.
- Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-76, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (UNIVERSIDAD DE LOS ANDES-CEDE).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.