Financial intermediaries, markets and growth

Falko Fecht, Kevin Huang (kevin.huang@vanderbilt.edu) and Antoine Martin

No 2005,03, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank

Abstract: We build a model in which financial intermediaries provide insurance to households against a liquidity shock. Households can also invest directly on a financial market if they pay a cost. In equilibrium, the ability of intermediaries to share risk is constrained by the market. 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 should grow slower than more market-oriented economies, which is consistent with some recent empirical evidence. We show that the mix of intermediaries and market that maximizes welfare under a given level of financial development depends on economic fundamentals. We also show the optimal mix of two structurally very similar economies can be very different.

Keywords: Financial Intermediaries; Risk Sharing; Finance and Growth; Comparing Financial Systems (search for similar items in EconPapers)
JEL-codes: E44 G10 G20 (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-fin, nep-fmk and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://www.econstor.eu/bitstream/10419/19511/1/200503dkp.pdf (application/pdf)

Related works:
Journal Article: Financial Intermediaries, Markets, and Growth (2008)
Journal Article: Financial Intermediaries, Markets, and Growth (2008)
Working Paper: Financial Intermediaries, Markets, and Growth (2007)
Working Paper: Financial intermediaries, markets, and growth (2004)
Working Paper: Financial intermediaries, markets, and growth (2004)
Working Paper: Financial intermediaries, markets, and growth (2004)
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