Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/200537 
Year of Publication: 
2018
Series/Report no.: 
Working Paper No. 2018-15
Publisher: 
Federal Reserve Bank of Atlanta, Atlanta, GA
Abstract: 
This paper analyzes financial intermediation chains in a search model with an endogenous intermediary sector. We show that the chain length and price dispersion among interdealer trades are decreasing in search cost, search speed, and market size but increasing in investors' trading needs. Using data from the U.S. corporate bond market, we find evidence broadly consistent with these predictions. Moreover, as search speed approaches infinity, the search equilibrium does not always converge to the centralized-market equilibrium: prices and allocation converge, but the trading volume might not. Finally, we analyze the multiplicity and stability of the equilibrium.
Subjects: 
search
chain
financial intermediation
multiplicity
stability
JEL: 
G10
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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