Townsend Lecture at Becker Friedman Institute on May 7

Evaluation of the Financial Systems of Developing Countries: A Policy Algorithm Using Theory and Data
May 1, 2013

Prof. Robert Towsend will be giving a lecture on May 7, from 5:15 p.m. to 7 p.m. in the Charles M. Harper Center, C25

Low-income and emerging market countries are eager to increase financial access, both for equity reasons and because of a belief that finance causes growth. Yet they also recognize micro- and macroprudential concerns stemming from the recent financial crisis. Consistent policy advice for these countries can be difficult to come by.

Townsend's lecture discusses work that provides an algorithm for approaching policy advice related to the financial systems of developing countries (and others) using a combination of theory and data. In this lecture, Townsend provides a brief review of CGE and DSGE models; an applied general equilibrium development approach; and the relationship among these approaches.

Townsend’s approach to measurement links macro aggregates to household and enterprise surveys, and makes it possible to model village, regional, and national economies consistently–both “real” components such as the national income and product accounts and “financial” factors such as flow of funds.

These data also allow tests of model-based, benchmark standards for efficiency, including models with explicit obstacles to trade and incomplete market/contract models. In turn, specific guidance for policy is generated.

Townsend’s lecture moves from these policy interventions to broader issues: the industrial organization of financial service providers and optimal market design. Hybrid models of regional and national financial development with building blocks estimated from micro data are highlighted throughout.