Investigating output cycles under two alternative financial systems
AbstractDifferent financial systems vary in the way they contribute to the process of resource allocation in the economy and in the risk-sharing pattern that they bring about. It would therefore be plausible to expect different financial systems to differ in the way they affect real economic activity. I hereby provide a theoretic framework for the comparison and analysis of output cycles under two alternative financial systems: an equity-based financial system (EFS), in which a mutual fund functions as a financial intermediary, versus a debt-based financial system (DFS), in which a bank plays that role. The research points that DFS generates larger output cycles and a higher expected output than EFS. The mechanism that generates these results is the counter-cyclical effect of savings' behavior under EFS.
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Bibliographic InfoPaper provided by Federal Reserve Bank of St. Louis in its series Supervisory Policy Analysis Working Papers with number 2007-04.
Date of creation: 2007
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-27 (All new papers)
- NEP-BAN-2007-10-27 (Banking)
- NEP-FDG-2007-10-27 (Financial Development & Growth)
- NEP-MAC-2007-10-27 (Macroeconomics)
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