Working Paper: NBER ID: w20821
Authors: Era Dabla-Norris; Yan Ji; Robert M. Townsend; D. Filiz Unsal
Abstract: A general equilibrium model featuring multiple realistic sources of financial frictions is developed to study how different constraints interact in equilibrium. We highlight, distinguish, and evaluate their differential impacts and rich interactions. The economic impact of financial inclusion policies in an economy depends not only on which constraint is alleviated, but also on the tightness of other constraints. Policy instruments should target the most binding constraint, which likely varies across countries. Moreover, there are important tradeoffs between financial inclusion, GDP, and the distribution of income. The transitional dynamics also differ from those in steady states. Policy makers should consider both.
Keywords: Financial Inclusion; GDP; Total Factor Productivity; Income Distribution; Policy Instruments
JEL Codes: C54; E23; E44; E69; O11; O16; O57
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| relaxing the collateral constraint (D10) | increase GDP (E20) |
| relaxing the collateral constraint (D10) | increase TFP (O49) |
| relaxing the collateral constraint (D10) | increase GDP and TFP (O49) |
| relaxing financial constraints (G28) | boost GDP (E20) |
| relaxing financial constraints (G28) | increased income inequality (D31) |