Authors: G. Menzies, R. Bird, P. Dixon and M. Rimmer
The Global Financial Crisis (GFC) has rekindled debate about the desirability of governmental interference in asset markets - either through the operation of policy levers, or, through the chosen institutional setup. In this paper we quantify economic costs due to mispricing of real assets in the USAGE model of the United States. The microeconomic costs of misallocated capital are second order small. The model suggests that regulators (or central banks) who risk mispricing by influencing asset prices do so without incurring large economic costs.
JEL classification: C50, G01, F41.
Keywords: Capital Misallocation, Financial crises, CGE modeling, real assets.
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