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Costly financial intermediation in neoclassical growth theory

2011; Wiley; Volume: 2; Issue: 1 Linguagem: Inglês

10.3982/qe40

1759-7331

Rajnish Mehra, Facundo Piguillem, Edward C. Prescott,

Economic theories and models

Quantitative EconomicsVolume 2, Issue 1 p. 1-36 Open Access Costly financial intermediation in neoclassical growth theory Rajnish Mehra, Rajnish Mehra Department of Economics and Finance, Arizona State University, and NBER; [email protected]Search for more papers by this authorFacundo Piguillem, Facundo Piguillem Department of Economics, Einaudi Institute for Economics and Finance; [email protected]Search for more papers by this authorEdward C. Prescott, Edward C. Prescott Department of Economics, Arizona State University, and Federal Reserve Bank of Minneapolis; [email protected] This paper has circulated under the title "Intermediated Quantities and Returns." We thank the editor, the two referees, Andy Abel, Costas Azariadis, Sudipto Bhattacharya, Bruce Lehmann, John Cochrane, George Constantinides, Cristina De Nardi, Douglas Diamond, John Donaldson, John Heaton, Jack Favilukis, Francisco Gomes, Fumio Hayashi, Daniel Lawver, Anil Kashyap, Juhani Linnainmaa, Robert Lucas, Ellen McGrattan, Krishna Ramaswamy, Jesper Rangvid, Kent Smetters, Michael Woodford, Dimitri Vayanos, Amir Yaron, Stephen Zeldes, the seminar participants at the Arizona State University, Bank of Korea, University of Calgary, UCLA, UCSD, Charles University, University of Chicago, Columbia University, Duke University, Federal Reserve Bank of Chicago, ITAM, London Business School, London School of Economics, University of Mannheim, University of Minnesota, University of New South Wales, Peking University, Reykjavik University, Rice University, University of Tokyo, University of Virginia, Wharton, Yale University, Yonsei University, the Economic Theory conference in Kos, the conference on Money, Banking and Asset Markets at the University of Wisconsin, and ESSFM in Gerzensee for helpful comments. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.Search for more papers by this author Rajnish Mehra, Rajnish Mehra Department of Economics and Finance, Arizona State University, and NBER; [email protected]Search for more papers by this authorFacundo Piguillem, Facundo Piguillem Department of Economics, Einaudi Institute for Economics and Finance; [email protected]Search for more papers by this authorEdward C. Prescott, Edward C. Prescott Department of Economics, Arizona State University, and Federal Reserve Bank of Minneapolis; [email protected] This paper has circulated under the title "Intermediated Quantities and Returns." We thank the editor, the two referees, Andy Abel, Costas Azariadis, Sudipto Bhattacharya, Bruce Lehmann, John Cochrane, George Constantinides, Cristina De Nardi, Douglas Diamond, John Donaldson, John Heaton, Jack Favilukis, Francisco Gomes, Fumio Hayashi, Daniel Lawver, Anil Kashyap, Juhani Linnainmaa, Robert Lucas, Ellen McGrattan, Krishna Ramaswamy, Jesper Rangvid, Kent Smetters, Michael Woodford, Dimitri Vayanos, Amir Yaron, Stephen Zeldes, the seminar participants at the Arizona State University, Bank of Korea, University of Calgary, UCLA, UCSD, Charles University, University of Chicago, Columbia University, Duke University, Federal Reserve Bank of Chicago, ITAM, London Business School, London School of Economics, University of Mannheim, University of Minnesota, University of New South Wales, Peking University, Reykjavik University, Rice University, University of Tokyo, University of Virginia, Wharton, Yale University, Yonsei University, the Economic Theory conference in Kos, the conference on Money, Banking and Asset Markets at the University of Wisconsin, and ESSFM in Gerzensee for helpful comments. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.Search for more papers by this author First published: 08 March 2011 https://doi.org/10.3982/QE40Citations: 22 AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Abstract The neoclassical growth model is extended to include costly intermediated borrowing and lending between households. This is an important extension as substantial resources are used to intermediate the large amount of borrowing and lending between households. In 2007, in the United States, the amount intermediated was 1.7 times gross national product (GNP), and the resources used in this intermediation amounted to at least 3.4 percent of GNP. The theory implies that financial intermediation services are an intermediate good, and that the spread between borrowing and lending rates measures the efficiency of the financial sector. References Abel, A. B. (1986), "Capital accumulation and uncertain lifetimes with adverse selection. Econometrica, 50 (5), 1079– 1097. Abel, A. B. and M. Warshawsky (1988), "Specification of the joy of giving: Insights from altruism. Review of Economics and Statistics, 70 (1), 145– 149. DOI: 10.2307/1928162 Altonji, J. G., F. Hayashi, and L. J. Kotlikoff (1997), "Parental altruism and inter vivos transfers: Theory and evidence. Journal of Political Economy, 105 (6), 1121– 1166. DOI: 10.1086/516388 Attanasio, O., J. Banks, C. Meghir, and G. Weber (1999), "Humps and bumps in lifetime consumption. 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