Intermediated quantities and returns
Rajnish Mehra,
Facundo Piguillem and
Edward Prescott
No 405, Staff Report from Federal Reserve Bank of Minneapolis
Abstract:
The difference between average borrowing and lending rates in the United States is over 2 percent. In spite of this large difference, there is over 1.7 times GNP in 2007 of intermediated borrowing and lending between households. In this paper a model is developed consistent with these facts. The only difference within an age cohort is preferences for bequests. Individuals with little or no bequest motive are lenders, while individuals with strong bequest motive are borrowers and owners of productive capital. Given no aggregate uncertainty, the return on equity is the same as the household borrowing rate. The government can borrow at the household lending rate, so there is a 2 percent equity premium in our world with no aggregate uncertainty. We examine the distribution and life cycle patterns of asset holding and consumption and find there is large dispersion in asset holdings and little in consumption. ; Updated by Working Paper 685.
Keywords: Equilibrium (Economics); Financial markets (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)
Downloads: (external link)
https://www.minneapolisfed.org/research/sr/sr405.pdf Full Text (application/pdf)
Related works:
Working Paper: Intermediated Quantities and Returns (2007) 
Working Paper: Intermediated quantities and returns (2007) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:405
Access Statistics for this paper
More papers in Staff Report from Federal Reserve Bank of Minneapolis Contact information at EDIRC.
Bibliographic data for series maintained by Kate Hansel ().