Financial intermediaries, markets, and growth

Falko Fecht () and Kevin X. D. Huang ()

No 419, Econometric Society 2004 North American Summer Meetings from Econometric Society

Abstract: This paper contributes to the literature comparing the relative performance of financial intermediaries and markets by studying an environment in which a trade-off between risk sharing and growth arises endogenously. 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. Moreover, intermediaries invest less in the productive technology when they provide more risk-sharing. This creates a trade-off between risk-sharing and growth. We show the balance of intermediaries and market that maximizes welfare depend on parameter values.

Keywords: Financial intermediaries; Financial markets; Risk-sharing; Growth (search for similar items in EconPapers)
JEL-codes: E44 G10 G20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-mfd
Date: 2004-08-11
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http://repec.org/esNASM04/up.27430.1075497028.pdf (application/pdf)

Related works:
Journal Article: Financial Intermediaries, Markets, and Growth (2008)
Working Paper: Financial Intermediaries, Markets, and Growth (2007)
Working Paper: Financial intermediaries, markets and growth (2005)
Working Paper: Financial intermediaries, markets, and growth (2004)
Working Paper: Financial intermediaries, markets, and growth (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:ecm:nasm04:419

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