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Financial Intermediaries, Markets, and Growth

Falko Fecht, Kevin Huang () and Antoine Martin ()

Journal of Money, Credit and Banking, 2008, vol. 40, issue 4, 701-720

Abstract: We build a model in which financial intermediaries provide insurance to households against idiosyncratic liquidity shocks. Households can invest in financial markets directly if they pay a cost. In equilibrium, the ability of intermediaries to share risk is constrained by the market. From a growth perspective, this can be beneficial because intermediaries invest less in the productive technology when they provide more risk-sharing. Our model predicts that bank-oriented economies can grow more slowly than more market-oriented economies, which is consistent with some recent empirical evidence. Copyright (c) 2008 Federal Reserve Bank of New York with Exclusive License to Print by The Ohio State University.

Date: 2008
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Journal Article: Financial Intermediaries, Markets, and Growth (2008) Downloads
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Working Paper: Financial intermediaries, markets and growth (2005) Downloads
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Working Paper: Financial intermediaries, markets, and growth (2004) Downloads
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