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Credit and Saving Constraints in General Equilibrium: A Quantitative Exploration

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  • Granda-Carvajal, Catalina
  • Hamann, Franz
  • Tamayo, Cesar E.

Abstract

In this paper we build an incomplete-markets model with heterogeneous households and firms to study the aggregate effects of saving constraints and credit constraints in general equilibrium. We calibrate the model using survey data from Colombia, a developing country in which informal saving and credit frictions are pervasive. Our quantitative results suggest that reducing savings costs increases selection into formal saving, but the effect on aggregate outcomes and welfare is dwarfed by that of a policy which ameliorates borrowing constraints. Such a policy improves resource allocation and increases returns to capital and labor, resulting in higher savings and welfare gains for both households and firms.

Suggested Citation

  • Granda-Carvajal, Catalina & Hamann, Franz & Tamayo, Cesar E., 2022. "Credit and Saving Constraints in General Equilibrium: A Quantitative Exploration," Working papers 92, Red Investigadores de Economía.
    • Handle: RePEc:rie:riecdt:92
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Credit and Saving Constraints in General Equilibrium: A Quantitative Exploration
      by Christian Zimmermann in NEP-DGE blog on 2022-09-12 16:49:18
    2. Credit and Saving Constraints in General Equilibrium: Evidence from Survey Data
      by Christian Zimmermann in NEP-DGE blog on 2017-06-14 23:48:52

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    Cited by:

    1. Fan Wang, 2022. "An Empirical Equilibrium Model of Formal and Informal Credit Markets in Developing Countries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 46, pages 224-243, October.
    2. Alina Malkova & Klara Sabirianova Peter & Jan Svejnar, 2021. "Labor Informality and Credit Market Accessibility," Papers 2102.05803, arXiv.org.
    3. Ngoc-Sang Pham, 2022. "Impacts of (individual and aggregate) productivity and credit shocks on equilibrium aggregate production," Working Papers halshs-03686284, HAL.
    4. Pham, Ngoc-Sang, 2018. "Credit limits and heterogeneity in general equilibrium models with a finite number of agents," MPRA Paper 88736, University Library of Munich, Germany.
    5. Li, Huiyu, 2022. "Leverage and productivity," Journal of Development Economics, Elsevier, vol. 154(C).
    6. García-Suaza, A & Gómez, M & Jaramillo, F, 2021. "Fiscal policy and informality in Colombia," Documentos de trabajo - Alianza EFI 19416, Alianza EFI.

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    More about this item

    Keywords

    saving constraints; credit constraints; financial inclusion; misallocation; savings; formal and informal financial markets;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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