Financial Intermediation, markets, and growth
Falko Fecht () and
Kevin Huang ()
No 464, 2004 Meeting Papers from Society for Economic Dynamics
This paper contributes to the literature comparing the relative performance of financial intermediaries and markets by studying an environment in which a trade-off between risk sharing and growth arises endogenously. 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. Moreover, intermediaries invest less in the productive technology when they provide more risk-sharing. This creates a trade-off between risk-sharing and growth. We show the mix of intermediaries and market that maximizes welfare depend on parameter values
Keywords: Financial intermediation; financial markets; risk-shring; growth (search for similar items in EconPapers)
JEL-codes: E44 G10 G20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-fin, nep-mac and nep-mfd
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