Security creation costs and economic development

Pedro Amaral and Erwan Quintin ()

Economic Theory, 2021, vol. 71, issue 1, No 10, 283-304

Abstract: Abstract We describe a tractable general equilibrium environment in which producers can transform cash-flows at a cost to create securities that cater to the needs of heterogeneous investors. We use the resulting model to characterize the theoretical implications of reductions in the cost of cash-flow transformation activities. Those reductions result in a greater volume of cash-flow transformation but have ambiguous effects on capital formation, output, and TFP, in clear contrast to the outcome of traditional financial development exercises.

Keywords: Endogenous security markets; Financial engineering; Macroeconomic aggregates (search for similar items in EconPapers)
JEL-codes: E44 O11 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s00199-020-01245-5

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