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Dynamic Banking: A Reconsideration

  • Bhattacharya, S.
  • Padilla, A.J.

Financially Intermediated and Stock Market consumption-investment allocations, with (and without) governmental interventions, are compared in a welfare sense in overlapping generations economies with ( and without) shocks to agents’ international preferences. We show that, first, tax-subsidy schemes under the same informational requirements needed for financial intermediation to function, lead to stock market allocations that are identical, or superior, to those attained under financial intermediation. Second, we argue that the necessary interventions are qualitatively no different from those required to implement stationary optimal allocations in OLG models without uncertainty regarding agents’ consumption preferences. Thus, we conclude that the provision of liquidity is tangential to stock market efficiency.

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Paper provided by Centro de Estudios Monetarios Y Financieros- in its series Papers with number 9413.

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Length: 31 pages
Date of creation: 1994
Date of revision:
Handle: RePEc:fth:cemfdt:9413
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