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Macroeconomic evolution after a shock: the role for financial intermediation

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  • Dmitri Vinogradov

    (Heidelberg University)

Abstract

An overlapping generations model with two production factors and two types of agents is considered in presence of …nancial intermediation. The research focuses at the analysis of the consequences of a suddain negative production shock on a …nancial intermediation capacities and consequently on the economy as a whole. The model exhibits a property of the ”chain reaction” when a single macroeconomic shock can lead to the exhaustion of credit resources and the bankruptcy of the whole banking system. To maintain the capability of the system to recover a regulatory intervention is needed even in presence of the state guarantees on agents’ deposits in the banks (workout incentives). Comparison with a pure market economy shows, that a system with properly regulated intermediation provides intertemporal smoothing of shocks, and the social losses induced by the shock are below those in the market economy.

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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0310007.

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Date of creation: 07 Oct 2003
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Handle: RePEc:wpa:wuwpma:0310007

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Keywords: Financial intermediation; overlapping generations; general equilibrium; regulation; intertemporal smoothing;

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Cited by:
  1. Dmitri Vinogradov, 2005. "Bailout Policy against Financial Intermediation Failures," Finance 0506003, EconWPA.
  2. Dmitri Vinogradov, 2005. "Banks versus Markets in Processing the Payments Shock," Finance 0506004, EconWPA.

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