Advanced Search
MyIDEAS: Login to save this paper or follow this series

Financial Intermediaries, Markets, and Growth

Contents:

Author Info

  • Falko Fecht

    ()
    (Deutsche Bundesbank)

  • Kevin X.D. Huang

    ()
    (Department of Economics, Vanderbilt University)

  • Antoine Martin

    ()
    (Federal Reserve Bank of New York)

Abstract

We build a model in which financial intermediaries provide insurance to households against idiosyncratic liquidity shocks. Households can invest in financial markets directly if they pay a cost. In equilibrium, the ability of intermediaries to share risk is constrained by the market. From a growth perspective, this can be beneficial because intermediaries invest less in the productive technology when they provide more risk-sharing. Our model predicts that bank-oriented economies can grow more slowly than more market-oriented economies, which is consistent with some recent empirical evidence. We show that the mix of intermediaries and markets that maximizes welfare under a given level of financial development depends on economic fundamentals.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.accessecon.com/pubs/VUECON/vu07-w14.pdf
File Function: First version, 2007
Download Restriction: no

Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0714.

as in new window
Length:
Date of creation: Aug 2007
Date of revision:
Handle: RePEc:van:wpaper:0714

Contact details of provider:
Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

Related research

Keywords: Financial intermediaries; financial markets; risk-sharing; growth ;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Raghuram G. Rajan & Luigi Zingales, 2001. "Financial Systems, Industrial Structure, and Growth," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 17(4), pages 467-482.
  2. Raghuram G. Rajan & Luigi Zingales, . "Financial Dependence and Growth," CRSP working papers, Center for Research in Security Prices, Graduate School of Business, University of Chicago 344, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  3. Greenwood, Jeremy & Jovanovic, Boyan, 1988. "Financial Development, Growth, And The Distribution Of Income," Working Papers, C.V. Starr Center for Applied Economics, New York University 88-12, C.V. Starr Center for Applied Economics, New York University.
  4. Douglas W. Diamond & Raghuram G. Rajan, . "A Theory of Bank Capital," CRSP working papers, Center for Research in Security Prices, Graduate School of Business, University of Chicago 363, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  5. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(3), pages 401-19, June.
  6. Franklin Allen & Douglas Gale, 1996. "Financial Markets, Intermediaries and Intertemporal Smoothing," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 96-33, Wharton School Center for Financial Institutions, University of Pennsylvania.
  7. Bencivenga, V.R. & Smith, B.D., 1988. "Financial Intermediation And Endogenous Growth," RCER Working Papers 124, University of Rochester - Center for Economic Research (RCER).
  8. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 35(2), pages 688-726, June.
  9. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  10. Ross Levine, 2002. "Bank-Based or Market-Based Financial Systems: Which is Better?," William Davidson Institute Working Papers Series 442, William Davidson Institute at the University of Michigan.
  11. Falko Fecht, 2003. "On the Stability of Different Financial Systems," Finance, EconWPA 0305008, EconWPA.
  12. Levine, Ross, 1991. " Stock Markets, Growth, and Tax Policy," Journal of Finance, American Finance Association, American Finance Association, vol. 46(4), pages 1445-65, September.
  13. Fulghieri, Paolo & Rovelli, Riccardo, 1998. "Capital markets, financial intermediaries, and liquidity supply," Journal of Banking & Finance, Elsevier, Elsevier, vol. 22(9), pages 1157-1180, September.
  14. Douglas W. Diamond & Raghuram G. Rajan, 1999. "Liquidity Risk, Liquidity Creation and Financial Fragility: A Theory of Banking," NBER Working Papers 7430, National Bureau of Economic Research, Inc.
  15. Allen, Franklin & Gale, Douglas, 1995. "A welfare comparison of intermediaries and financial markets in Germany and the US," European Economic Review, Elsevier, Elsevier, vol. 39(2), pages 179-209, February.
  16. Beck, T.H.L. & Levine, R., 2002. "Industry growth and capital allocation: Does having a market- or bank-based system matter?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125514, Tilburg University.
  17. 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, Elsevier, vol. 23(3), pages 385-403, April.
  18. Mitchell Berlin & Loretta J. Mester, 1997. "Deposits and relationship lending," Working Papers 96-18, Federal Reserve Bank of Philadelphia.
  19. Jappelli, Tullio & Pagano, Marco, 1992. "Saving, Growth and Liquidity Constraints," CEPR Discussion Papers, C.E.P.R. Discussion Papers 662, C.E.P.R. Discussion Papers.
  20. Ennis, Huberto M. & Keister, Todd, 2003. "Economic growth, liquidity, and bank runs," Journal of Economic Theory, Elsevier, Elsevier, vol. 109(2), pages 220-245, April.
  21. Hamerle, Alfred & Liebig, Thilo & Scheule, Harald, 2004. "Forecasting Credit Portfolio Risk," Discussion Paper Series 2: Banking and Financial Studies 2004,01, Deutsche Bundesbank, Research Centre.
  22. Neuburger, Hugh & Stokes, Houston H., 1974. "German Banks and German Growth, 1883–1913: an Empirical View," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 34(03), pages 710-731, September.
  23. Freeman, Scott, 1985. "Transactions Costs and the Optimal Quantity of Money," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(1), pages 146-57, February.
  24. Douglas W. Diamond, . "Liquidity, Banks and Markets," CRSP working papers, Center for Research in Security Prices, Graduate School of Business, University of Chicago 326, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  25. Enrique L. Kawamura & Gaetano Antinolfi, 2005. "Banking and Markets in a Monetary Model," Working Papers, Universidad de San Andres, Departamento de Economia 79, Universidad de San Andres, Departamento de Economia, revised Feb 2005.
  26. O. Emre Ergungor, 2003. "Financial system structure and economic development: structure matters," Working Paper 0305, Federal Reserve Bank of Cleveland.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:van:wpaper:0714. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John P. Conley).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.