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Financial Intermediaries and Transaction Costs

Author

Listed:
  • Augusto Hasman

    () (Observatoire Français des Conjonctures Économiques and SKEMA Business School)

  • Margarita Samartin

    () (Business Department, Universidad Carlos III de Madrid)

  • Jos van Bommel

    () (Universidad Cardenal Herrera)

Abstract

We present an overlapping generations model with spatial separation and agents who face unsystematic liquidity risk. In a pure exchange economy, agents engage in life cycle portfolio rebalancing. In an intermediated economy, intergenerational banks or mutual funds cater to diversified clienteles so as to avoid rebalancing transactions. In equilibrium, these intermediaries pay redemptions with portfolio income and never sell secondary assets. We also find that the pure exchange economy has a downward sloping yield curve and is inherently cyclical.

Suggested Citation

  • Augusto Hasman & Margarita Samartin & Jos van Bommel, 2010. "Financial Intermediaries and Transaction Costs," Documents de Travail de l'OFCE 2010-02, Observatoire Francais des Conjonctures Economiques (OFCE).
  • Handle: RePEc:fce:doctra:1002
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    References listed on IDEAS

    as
    1. Ernst-Ludwig VON THADDEN, 1996. "Optimal Liquidity Provision and Dynamic Incentive Compatibility," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9604, Université de Lausanne, Faculté des HEC, DEEP.
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    Keywords

    Financial Intermediation; Overlapping Generations; Liquidity.;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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