Heterogeneous capital and misintermediation

Feng Guo and J.H. McCulloch

Journal of Macroeconomics, 2017, vol. 53, issue C, 16-41

Abstract: A perennial problem of financial markets is that of maturity mismatch, or misintermediation, a situation in which financial intermediaries fund long-term, illiquid loans with short-term liabilities. A previous theory concludes that misintermediation can be responsible for business cycles and yields procyclical behavior of surprises in real interest rates. This paper proposes a finite horizon structural model with the introduction of heterogeneous capital to formalize and develop that theory. An extended model with labor as well as a “harvesting” technology further investigates the impact of misintermediation on real factor prices. The model implied relationship between unanticipated changes in real interest rates and real outputs over time is examined in a subsequent empirical study, which provides preliminary evidence consistent with the hypothesis of misintermediation.

Keywords: Misintermediation; Heterogeneous capital; Term structure of interest rates; Austrian business cycle theory (search for similar items in EconPapers)
JEL-codes: B53 C22 E32 E43 G01 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:53:y:2017:i:c:p:16-41

DOI: 10.1016/j.jmacro.2017.05.001

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