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Dynamic Banking: A Reconsideration

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  • Bhattacharya, Sudipto
  • Padilla, A Jorge

Abstract

Financially intermediated and stock market consumption-investment avocations, with and without governmental interventions, are compared in a welfare sense in overlapping generation economies with (and without) shocks to agents' intertemporal preferences. We first show that, in economies with preference shocks, governmental interventions subject to the same informational requirements as those imposed on financial intermediaries, lead to stock market allocations that are not inferior to those attained under financial intermediation. Second, we argue that the necessary interventions are qualitatively no different from those required to implement stationary optimal allocations in OLG models without shocks to agents' intertemporal consumption preferences. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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Bibliographic Info

Article provided by Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 9 (1996)
Issue (Month): 3 ()
Pages: 1003-32

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Handle: RePEc:oup:rfinst:v:9:y:1996:i:3:p:1003-32

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Cited by:
  1. Allen, Franklin & Gale, Douglas, 1997. "Financial Markets, Intermediaries, and Intertemporal Smoothing," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 523-46, June.
  2. Mallick, Indrajit, 2004. "Strategic Allocation of Liquidity in the InterBank Money Market," MPRA Paper 15427, University Library of Munich, Germany.
  3. Ioannis Lazopoulos, 2005. "Cycles And Banking Crisis," Money Macro and Finance (MMF) Research Group Conference 2005 15, Money Macro and Finance Research Group.
  4. Gerald P. Dwyer, Jr. & Margarita Samartín, 2006. "Why do banks promise to pay par on demand?," Working Paper 2006-26, Federal Reserve Bank of Atlanta.
  5. Antoine Martin & David Skeie & Ernst-Ludig von Thadden, 2011. "Repo Runs," FMG Discussion Papers dp687, Financial Markets Group.
  6. Qian, Yiming & John, Kose & John, Teresa A., 2004. "Financial system design and liquidity provision by banks and markets in a dynamic economy," Journal of International Money and Finance, Elsevier, vol. 23(3), pages 385-403, April.
  7. Franklin Allen & Douglas Gale, 1994. "A welfare comparison of intermediaries and financial markets in Germany and the U.S," Working Papers 95-3, Federal Reserve Bank of Philadelphia.
  8. Gersbachd, Hans, 1998. "Liquidity Creation, Efficiency, and Free Banking," Journal of Financial Intermediation, Elsevier, vol. 7(1), pages 91-118, January.
  9. Niinimäki, Juha-Pekka, 2002. "Bank panics in transition economies," BOFIT Discussion Papers 2/2002, Bank of Finland, Institute for Economies in Transition.
  10. Jos van Bommel, 2007. "Endogenous Cycles and Liquidity Risk," Money Macro and Finance (MMF) Research Group Conference 2006 149, Money Macro and Finance Research Group.

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