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Financial Intermediaries, Markets, and Growth

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  • FALKO FECHT
  • KEVIN X. D. HUANG
  • ANTOINE MARTIN

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.

Suggested Citation

  • Falko Fecht & Kevin X. D. Huang & Antoine Martin, 2008. "Financial Intermediaries, Markets, and Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(4), pages 701-720, June.
    • Handle: RePEc:wly:jmoncb:v:40:y:2008:i:4:p:701-720
    DOI: 10.1111/j.1538-4616.2008.00132.x
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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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