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Costly financial intermediation in neoclassical growth theory

Rajnish Mehra (), Facundo Piguillem () and Edward Prescott

No 685, Working Papers from Federal Reserve Bank of Minneapolis

Abstract: The neoclassical growth model is extended to include costly intermediated borrowing and lending between households. This is an important extension as substantial resources are used in intermediating the large amount of borrowing and lending between households. In 2007, in the United States, the amount intermediated was 1.7 times GNP, and the resources used in this intermediation amounted to at least 3.4 percent of GNP. The theory implies that financial intermediation services are an intermediate good and that the spread between borrowing and lending rates measures the efficiency of the financial sector. ; This paper was previously published as Working Paper 655 and Staff Report 405 under the title \"Intermediated Quantities and Returns.\"

Date: 2011
New Economics Papers: this item is included in nep-ban and nep-dge
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Journal Article: Costly financial intermediation in neoclassical growth theory (2011)
Working Paper: Costly Financial Intermediation in Neoclassical Growth Theory (2008) Downloads
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