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Financial intermediation in the theory of the risk-free rate

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  • Marini, François

Abstract

This paper constructs a general equilibrium model of the interaction between financial intermediaries and financial markets that sheds some light on the short-term volatility of real interest rates. The main findings of the paper are as follows. When financial intermediaries issue contingent (non-contingent) liabilities, an increase in the consumers' relative risk aversion coefficient decreases (increases) the interest rate. Also, the interest rate rises when capitalists are less risk-averse and financial intermediaries are hit by a liquidity shock.

Suggested Citation

  • Marini, François, 2011. "Financial intermediation in the theory of the risk-free rate," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1663-1668, July.
  • Handle: RePEc:eee:jbfina:v:35:y:2011:i:7:p:1663-1668
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    References listed on IDEAS

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