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Macroeconomic evolution after a shock: the role for financial intermediation

  • Dmitri Vinogradov

    (Heidelberg University)

An overlapping generations model with two production factors and two types of agents is considered in presence of …nancial intermediation. The research focuses at the analysis of the consequences of a suddain negative production shock on a …nancial intermediation capacities and consequently on the economy as a whole. The model exhibits a property of the ”chain reaction” when a single macroeconomic shock can lead to the exhaustion of credit resources and the bankruptcy of the whole banking system. To maintain the capability of the system to recover a regulatory intervention is needed even in presence of the state guarantees on agents’ deposits in the banks (workout incentives). Comparison with a pure market economy shows, that a system with properly regulated intermediation provides intertemporal smoothing of shocks, and the social losses induced by the shock are below those in the market economy.

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Paper provided by EconWPA in its series Macroeconomics with number 0310007.

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Date of creation: 07 Oct 2003
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Handle: RePEc:wpa:wuwpma:0310007
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  1. Bencivenga, Valerie R & Smith, Bruce D, 1991. "Financial Intermediation and Endogenous Growth," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 195-209, April.
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  9. Eichengreen, Barry & Arteta, Carlos, 2000. "Banking Crises in Emerging Markets: Presumptions and Evidence," Center for International and Development Economics Research, Working Paper Series qt3pk9t1h2, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
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  12. Bhattacharya, Sudipto & Boot, Arnoud W A & Thakor, Anjan V, 1998. "The Economics of Bank Regulation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 745-70, November.
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  17. Caprio, Gerard Jr. & Klingebiel, Daniela, 1996. "Bank insolvencies : cross-country experience," Policy Research Working Paper Series 1620, The World Bank.
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