Financial intermediaries, markets, and growth
Falko Fecht,
Kevin Huang () and
Antoine Martin
No RWP 04-02, Research Working Paper from Federal Reserve Bank of Kansas City
Abstract:
In many models of financial intermediation, markets reduce welfare because they limit the amount of risk-sharing intermediaries can offer. In this paper we study a model in which markets also promote investment in a productive technology. A trade-off between risk sharing and growth arises endogenously. In the model, financial intermediaries provide insurance to households against a liquidity shock. Households can also invest directly on a financial market if they pay a cost. In equilibrium, the ability of intermediaries to share risk is constrained by the market. This can be beneficial because intermediaries invest less in the productive technology when they provide more risk-sharing. We show the mix of intermediaries and market that maximizes welfare depend on parameter values. We also show the optimal mix of two very similar economies can be very different.
Keywords: Financial; markets (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-dge, nep-fin, nep-ias and nep-mfd
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Citations: View citations in EconPapers (5)
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https://www.kansascityfed.org/documents/5383/pdf-RWP04-02.pdf (application/pdf)
Related works:
Journal Article: Financial Intermediaries, Markets, and Growth (2008)
Journal Article: Financial Intermediaries, Markets, and Growth (2008) 
Working Paper: Financial Intermediaries, Markets, and Growth (2007) 
Working Paper: Financial intermediaries, markets and growth (2005) 
Working Paper: Financial intermediaries, markets, and growth (2004) 
Working Paper: Financial intermediaries, markets, and growth (2004) 
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