| Chapter 1 presents a simple model where a costly state verification problem is the source of friction in the domestic credit market, and where the economic agents have an uncertain, uninsurable demand for liquidity of the type analyzed in Diamond and Dybving 1983. This theoretical framework allows for simultaneous endogenous formation of both banks and a secondary capital market. The objective of the chapter is to analyze how changes in the technical efficiency of banks and capital market affect the level of economic welfare, the expected rates of return, and the level of activity of the different financial markets.; Chapter 2 focuses on the interaction of financial capital movement and the macroeconomic behavior of a small open economy faced with foreign interest rate disturbances. An economic model for a small open economy is developed to analyze the impact of external shocks on output, rate of returns, levels of financial market activities and capital stock. Also, the model is used to analyze the effects of the various policies used to cope with the abrupt inflows and outflows of financial capital. The model is calibrated to resemble the Mexican economy during the last three decades. |
