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Financial intermediaries, markets, and growth

Author

Listed:
  • Falko Fecht
  • Kevin Huang
Abstract
This paper contributes to the literature comparing the relative performance of financial intermediaries and markets by studying an environment in which a trade-off between risk sharing and growth arises endogenously. Financial intermediaries provide insurance to households against a liquidity shock. Households can also invest directly on a financial market, if they pay a cost. In equilibrium, the ability of intermediaries to share risk is constrained by the market. Moreover, intermediaries invest less in the productive technology when they provide more risk-sharing. This creates a trade-off between risk-sharing and growth. We show the balance of intermediaries and market that maximizes welfare depend on parameter values.

Suggested Citation

  • Falko Fecht & Kevin Huang, 2004. "Financial intermediaries, markets, and growth," Econometric Society 2004 North American Summer Meetings 419, Econometric Society.
    • Handle: RePEc:ecm:nasm04:419
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    References listed on IDEAS

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    More about this item

    Keywords

    Financial intermediaries; Financial markets; Risk-sharing; Growth;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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