Interaction of formal and informal financial markets in quasi-emerging market economies

Show simple item record Ngalawa, Harold Viegi, Nicola 2014-05-16T11:55:46Z 2014-05-16T11:55:46Z 2013-03
dc.description.abstract The primary objective of this paper is to investigate the interaction of formal and informal financial markets and their impact on economic activity in quasi-emerging market economies. Using a four-sector dynamic stochastic general equilibrium model with asymmetric information in the formal financial sector, we come up with three fundamental findings. First, we demonstrate that formal and informal financial sector loans are complementary in the aggregate, suggesting that an increase in the use of formal financial sector credit creates additional productive capacity that requires more informal financial sector credit to maintain equilibrium. Second, it is shown that interest rates in the formal and informal financial sectors do not always change together in the same direction. We demonstrate that in some instances, interest rates in the two sectors change in diametrically opposed directions with the implication that the informal financial sector may frustrate monetary policy, the extent of which depends on the size of the informal financial sector. Thus, the larger the size of the informal financial sector the lower the likely impact of monetary policy on economic activity. Third, the model shows that the risk factor (probability of success) for both high and low risk borrowers plays an important role in determining the magnitude by which macroeconomic indicators respond to shocks. en_US
dc.description.librarian hb2014 en_US
dc.description.sponsorship African Economic Research Consortium(AERC), the Bill & Melinda Gates Foundation, the Economic Research Southern Africa (ERSA) and the University of Cape Town. en_US
dc.description.uri en_US
dc.identifier.citation Ngalawa, H & Nicola, N 2013, 'Interaction of formal and informal financial markets in quasi-emerging market economies', Economic Modelling, vol. 31, pp. 614-624. en_US
dc.identifier.issn 0264-9993 (print)
dc.identifier.issn 1873-6122 (online)
dc.identifier.other 10.1016/j.econmod.2013.01.005
dc.language.iso en en_US
dc.publisher Elsevier en_US
dc.rights © 2013 Elsevier B.V. All rights reserved.Notice : this is the author’s version of a work that was accepted for publication in Economic Modelling. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Economic Modelling, vol. 31, pp.614-624, 2013, doi : 10.1016/j.econmod.2013.01.005 en_US
dc.subject Informal financial sector en_US
dc.subject Formal financial sector en_US
dc.subject Monetary policy en_US
dc.subject General equilibrium en_US
dc.title Interaction of formal and informal financial markets in quasi-emerging market economies en_US
dc.type Preprint Article en_US

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