Macroeconomic evolution after a shock: the role for financial intermediation

Abstract: An overlapping generations model with two production factors and two types of agents is considered in presence of …nancial intermediation. The research focuses at the analysis of the consequences of a suddain negative production shock on a …nancial intermediation capacities and consequently on the economy as a whole. The model exhibits a property of the ”chain reaction” when a single macroeconomic shock can lead to the exhaustion of credit resources and the bankruptcy of the whole banking system. To maintain the capability of the system to recover a regulatory intervention is needed even in presence of the state guarantees on agents’ deposits in the banks (workout incentives). Comparison with a pure market economy shows, that a system with properly regulated intermediation provides intertemporal smoothing of shocks, and the social losses induced by the shock are below those in the market economy.

Keywords: Financial intermediation; overlapping generations; general equilibrium; regulation; intertemporal smoothing (search for similar items in EconPapers)
JEL-codes: D50 G21 G28 E44 E53 O16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac, nep-mfd and nep-mon
Date: Written 2003-10-07
Note: Type of Document - PDF; prepared on IBM PC ; to print on HP;
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