Financial Inefficiency and Real Business Cycle in Colombia
  

Camilo Zea*
czeagome@banrep.gov.co

May 10 1999

 Abstract

In a dynamic, stochastic, general equilibrium model, we explore the optimal response of the inhabitants of a closed economy to an inefficient ad hoc financial system that in its intermediation duty looses a fraction of agrégate savings which otherwise would become agrégate investment. The incidente 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 behaviour of the Colombian economy, making it possible to explore several issues of financial liberalization and deepening.

 
JEL Classification: E32; E37; E22; G14.
 Keywords:Business Cycles, Financial Inefficiency, Artificial Economy.

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                *This paper is part of my graduate Master s Degree work at the Universidad de los Andes, Colombia. I gratefully acknowledge Rodrigo Suescún s advice, and important comments by Roberto Steiner and Maurice Kugler. I also thank Verónica Navas, Gustavo Suárez, Javier Birchenall, Julio Escobar, Alvaro Riascos, Andrés González, Jairo Núñez, Diana Leal and Seminal Participants at Banco de la República and Discrete Time Macroeconomic Dynamics at Universidad de los Andes. The usual chaveta applies.