Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/271779 
Year of Publication: 
2022
Series/Report no.: 
CESifo Working Paper No. 10135
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We introduce a banking sector and heterogeneous agents in the Matsuyama et al. (2016) dynamic over-lapping generations neoclassical model with good and bad projects. The model captures the benefits and costs of an advanced banking system which can facilitate economic development when allocates resources to productive activities but can also hamper progress when invests in projects that do not contribute to capital formation. When the economy achieves higher stages of development it becomes prone to cycles. We show how the disparity of incomes across agents de-pends on changes in both the prices of the factors of production and the reallocation of agents across occupations.
Subjects: 
banks
financial innovation
economic development
business cycles
income inequality
JEL: 
E32
E44
G21
Document Type: 
Working Paper
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