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Financial Inefficiency and Real Business Cycle in Colombia

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  • Camilo Zea

Abstract

In a dynamic, stochastic, general equilibrium model,we explore the optimal response of the inhabitans of a closed economy to an inefficient ad hoc financial system that in its intermediation duty looses a fraction of aggregate savings which otherwise would become aggregate investment. The incidence over the cycle of shocks to average financial inefficiency and technology is analyzed, as well as the steady state welfare gain of a reduction in average financial inefficiency. The descriptive power of the model is assessed with Colombian data between 1970 and 1992. The results in the paper suggest that the model's predictions are largely consistent with aggregate behavior of the Colombian economy, making it possible to explore several issues of financial liberalization and deepening.

Suggested Citation

  • Camilo Zea, 1999. "Financial Inefficiency and Real Business Cycle in Colombia," Borradores de Economia 127, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:127
    DOI: 10.32468/be.127
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    More about this item

    Keywords

    Business Cycles; Financial Inefficiency; Artificial Economy.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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