Has the U.S. Finance Industry Become Less Efficient? On the Theory and Measurement of Financial Intermediation

Thomas Philippon ()

No 9792, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: A quantitative investigation of financial intermediation in the U.S. over the past 130 years yields the following results : (i) the finance industry?s share of GDP is high in the 1920s, low in the 1950s and 1960s, and high again in the 1990s and 2000s; (ii) most of these variations can be explained by corresponding changes in the quantity of intermediated assets (equity, household and corporate debt, assets yielding liquidity services); (iii) intermediation is produced under constant returns to scale with an annual average cost comprised between 1.5% and 2% of outstanding assets; (iv) quality adjustments that take into account changes in the characteristics of firms and households are quantitatively important; and (v) the unit cost of intermediation has not decreased over the past 30 years.

Keywords: Economic growth; Informativeness; investment; Price efficiency (search for similar items in EconPapers)
JEL-codes: E2 G2 N2 (search for similar items in EconPapers)
Date: 2014-01
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Has the US Finance Industry Become Less Efficient? On the Theory and Measurement of Financial Intermediation (2015)
Working Paper: Has the U.S. Finance Industry Become Less Efficient? On the Theory and Measurement of Financial Intermediation (2012)
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