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Costly financial intermediation and excess consumption volatility

Ayse Sapci ()

Journal of Macroeconomics, 2017, vol. 51, issue C, 97-114

Abstract: This paper documents the cyclical properties of financial intermediation costs and uses their dynamics to explain excess consumption volatility (ECV) differences across countries in a dynamic stochastic general equilibrium framework with housing market. I find that financial development levels have a limited role in explaining ECVs. Instead, the volatility of financial sectors plays the determinative role. Consistent with the data, the model finds higher ECVs in emerging countries. The paper also shows that if the US had the same intermediation cost structure as Turkey, deteriorations in the production and consumption following a financial shock would increase threefold.

Keywords: Financial intermediation costs; Excess consumption volatility; Housing market; Financial development; Financial shocks (search for similar items in EconPapers)
JEL-codes: E21 E32 E44 G01 G21 O16 (search for similar items in EconPapers)
Date: 2017
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Working Paper: Costly Financial Intermediation and Excess Consumption Volatility (2014) Downloads
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DOI: 10.1016/j.jmacro.2016.12.003

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