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http://hdl.handle.net/10419/19511
  
Title:Financial intermediaries, markets and growth PDF Logo
Authors:Fecht, Falko
Huang, Kevin
Martin, Antoine
Issue Date:2005
Series/Report no.:Discussion paper Series 1 / Volkswirtschaftliches Forschungszentrum der Deutschen Bundesbank 2005,03
Abstract:We build a model in which 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. Our model predicts that bank-oriented economies should grow slower than more market-oriented economies, which is consistent with some recent empirical evidence. We show that the mix of intermediaries and market that maximizes welfare under a given level of financial development depends on economic fundamentals. We also show the optimal mix of two structurally very similar economies can be very different.
Subjects:Financial Intermediaries
Risk Sharing
Finance and Growth
Comparing Financial Systems
JEL:E44
G20
G10
Document Type:Working Paper
Appears in Collections:Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank

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