Financial intermediation in the theory of the risk-free rate

François Marini

Journal of Banking & Finance, 2011, vol. 35, issue 7, pages 1663-1668

Abstract: This paper constructs a general equilibrium model of the interaction between financial intermediaries and financial markets that sheds some light on the short-term volatility of real interest rates. The main findings of the paper are as follows. When financial intermediaries issue contingent (non-contingent) liabilities, an increase in the consumers' relative risk aversion coefficient decreases (increases) the interest rate. Also, the interest rate rises when capitalists are less risk-averse and financial intermediaries are hit by a liquidity shock.

Keywords: Financial; intermediation; Financial; markets; Liquidity; preference; Risk; aversion; Risk-free; rate; Risk; sharing (search for similar items in EconPapers)
Date: 2011
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Persistent link: http://EconPapers.repec.org/RePEc:eee:jbfina:v:35:y:2011:i:7:p:1663-1668

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