IDEAS home Printed from https://ideas.repec.org/p/fip/fedcwp/1629.html

A New Perspective on the Finance-Development Nexus

Author

Listed:
  • Pedro S. Amaral
  • Dean Corbae
  • Erwan Quintin

Abstract

The existing literature on financial development focuses mostly on the causal impact of the quantity of financial intermediation on economic development. This paper, instead, focuses on the role of the financial sector in creating securities that cater to the needs of heterogeneous investors. To that end, we describe a dynamic extension of Allen and Gale (1989)?s optimal security design model in which producers can tranche the stochastic cash flows they generate at a cost. Lower tranching costs in that environment lead to capital deepening and raise aggregate output. The implications of lower tranching costs for TFP, on the other hand, are fundamentally ambiguous. In other words, our model predicts that increased financial sophistication/complexity?a securitization boom, e.g.?can have adverse consequences on aggregate productivity as it is conventionally measured.

Suggested Citation

  • Pedro S. Amaral & Dean Corbae & Erwan Quintin, 2016. "A New Perspective on the Finance-Development Nexus," Working Papers (Old Series) 1629, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:1629
    as

    Download full text from publisher

    File URL: https://www.clevelandfed.org/en/newsroom-and-events/publications/working-papers/2016-working-papers/wp-1629-a-new-perspective-on-the-finance-development-nexus.aspx
    File Function: Full text
    Download Restriction: no
    ---><---

    Other versions of this item:

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedcwp:1629. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: 4D Library (email available below). General contact details of provider: https://edirc.repec.org/data/frbclus.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.