Financial Intermediaries, Markets, and Growth |
| |
Authors: | FALKO FECHT,KEVIN X. D. HUANG&dagger ,ANTOINE MARTIN&Dagger |
| |
Affiliation: | Falko Fecht;is at the Research Department, Deutsche Bundesbank (E-mail: ). Kevin X.D. Huang;is at the Economics Department, Vanderbilt University (E-mail: ). Antoine Martin;is at the Research Department, Federal Reserve Bank of New York (E-mail: ). |
| |
Abstract: | We build a model in which financial intermediaries provide insurance to households against idiosyncratic liquidity shocks. Households can invest in financial markets directly if they pay a cost. In equilibrium, the ability of intermediaries to share risk is constrained by the market. From a growth perspective, this can be beneficial because intermediaries invest less in the productive technology when they provide more risk-sharing. Our model predicts that bank-oriented economies can grow more slowly than more market-oriented economies, which is consistent with some recent empirical evidence. |
| |
Keywords: | E44 G10 G20 |
|
|