Piggy banks: financial intermediaries as a commitment to save
AbstractSavers with uncertain life spans cannot stick to long-term investment plans when they invest directly in liquid assets. Before horizons are known, all savers will plan to roll over their short-term assets if returns turn out high. Ex post, the short-term investors will consume their liquid assets rather than reinvest them. Delegating investment decisions to an intermediary reduces the commitment problem, and leads to more efficient portfolios. The higher return to savings should also increase savings rates.
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Bibliographic InfoPaper provided by Federal Reserve Bank of New York in its series Staff Reports with number 50.
Date of creation: 1998
Date of revision:
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- James McAndrews & William Roberds, 1999.
"Payment intermediation and the origins of banking,"
99-11, Federal Reserve Bank of Atlanta.
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