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Ensayos sobre POLÍTICA ECONÓMICA
Print version ISSN 0120-4483
Abstract
TORRES, Alejandro; RHENALS, G Remberto and GOMEZ, M Wilman. Financial Crises and Effectiveness of the Lender of Last Resort Policy: a Dynamic General Equilibrium Model for the Colombian Case. Ens. polit. econ. [online]. 2010, vol.28, n.spe61, pp.272-305. ISSN 0120-4483.
The current global financial crisis, which unfolded in the US during 2008, has put the importance of the financial system in the economy, the potential economic policies available to support it and their short and long term implications back into the academic and political debate. This article explores the possible effects of the Lender of Last Resort Policy of central banks on the process of overcoming financial crises and its implications in terms of growth. To this end, we used a customized Dynamic General Equilibrium Model which explicitly includes the financial system and the Liquidity Support policy of the central bank. The simulations have shown that this type of policy facilitates overcoming financial crises in less time, but that they also delay the economy´s readjustment in the long term and increase its volatility.
Keywords : Financial System; Economic Crisis; Lender of Last Resort; Economic Policy.