 Can Financial Intermediation Induce Endogenous Fluctuations?Sanjay Banerji, Joydeep Bhattacharya and Ngo Long Staff General Research Papers Archive from Iowa State University, Department of Economics Abstract: This paper studies the possibility of endogenous fluctuations caused by activities of financial intermediaries. Risk-averse agents borrow from banks and invest in a risky two-state capital technology. The probability of success with the technology is assumed to be decreasing in the amount of capital invested. In a complete information setting with intermediation, the efficient loan contract achieves complete risk sharing but the amount invested in the risky project is smaller than the loan size. This "income effect" is responsible for the endogenous generation of complex dynamics. In the absence of intermediation, the economy studied cannot exhibit any cyclical fluctuations. Keywords: financial intermediation; endogenous fluctuations; loan contracts (search for similar items in EconPapers) Published in Journal of Economic Dynamics and Control, October 2004, vol. 28 no. 11, pp. 2215-2238 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:10953 Access Statistics for this paper More papers in Staff General Research Papers Archive from Iowa State University, Department of Economics Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070. Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.