IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Intermediation Costs and Welfare

  • António Antunes
  • Tiago Cavalcanti
  • Anne Villamil

This paper studies quantitatively how intermediation costs affect household consumption loans and welfare. Agents face uninsurable idiosyncratic shocks to labor productivity in a production economy with costly financial intermediation and a natural borrowing limit. Reducing intermediation costs leads to two effects: First, for a given interest rate, borrowing costs decrease, which improves the ability of agents to smooth consumption overtime. Second, the demand for loans increases, which increases the interest rate. The aggregate welfare gain of reducing intermediation costs from 3.927 percent (US level) to 1 percent is about 1.14 percent of equivalent consumption in the baseline economy for an endogenous interest rate and and 1.90 for an exogenous interest rate. The gains are distributed unevenly: households at the bottom wealth decile improve welfare by 3.96 and 5.86 percent of equivalent consumption, while those at the top decile have a welfare gain of 0.35 and 0.2 percent, when the interest rate is determined endogenously and exogenously, respectively.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.socialsciences.manchester.ac.uk/medialibrary/cgbcr/discussionpapers/dpcgbcr142.pdf
Download Restriction: no

Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 142.

as
in new window

Length: 33 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:man:cgbcrp:142
Contact details of provider: Postal: Manchester M13 9PL
Phone: (0)161 275 4868
Fax: (0)161 275 4812
Web page: http://www.socialsciences.manchester.ac.uk/subjects/economics/our-research/centre-for-growth-and-business-cycle-research/
More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. V. Martins-da-Rocha & Yiannis Vailakis, 2010. "Financial markets with endogenous transaction costs," Economic Theory, Springer, vol. 45(1), pages 65-97, October.
  2. Rajnish Mehra & Facundo Piguillem & Edward C. Prescott, 2007. "Intermediated quantities and returns," Working Papers 655, Federal Reserve Bank of Minneapolis.
  3. Nelson Souza-Sobrinho, 2010. "Macroeconomics of bank interest spreads: evidence from Brazil," Annals of Finance, Springer, vol. 6(1), pages 1-32, January.
  4. Yuriy Gorodnichenko & Klara Sabirianova Peter & Dmitriy Stolyarov, 2009. "Inequality and Volatility Moderation in Russia: Evidence from Micro-Level Panel Data on Consumption and Income," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0905, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  5. Martins-da-Rocha, Victor Filipe & Vailakis, Yiannis, 2008. "Endogenous Transaction Costs," Economics Working Papers (Ensaios Economicos da EPGE) 680, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  6. Andrés Erosa & Ana Hidalgo Cabrillana, 2008. "On Finance As A Theory Of Tfp, Cross-Industry Productivity Differences, And Economic Rents," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 437-473, 05.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:man:cgbcrp:142. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marianne Sensier)

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.