Article (Scientific journals)
Financial intermediation in a noverlapping generations model with transaction costs
Van Bommel, Jos; Hasman, Augusto; Samartín, Margarita
2014In Journal of Economic Dynamics and Control
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Abstract :
[en] We analyze an overlapping generations economy where agents interact to share liquidity risk. We show that a pure exchange economy has excessive trade in equilibrium because agents interact to rebalance their portfolios. Intergenerational financial intermediaries reduce the number of interactions because agents only transact when they face liquidity needs. In the absence of asset risk, intermediaries match redemptions with deposits and dividends, and never sell assets. If the economy is subject to transaction costs, the intermediated economy can sustain higher stationary investment and welfare. We also find that dead weight transaction costs can increase welfare because it protects banks from interbank arbitrage and dampens the inherent cyclicality of market economies.
Disciplines :
Finance
Author, co-author :
Van Bommel, Jos ;  University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Luxembourg School of Finance (LSF)
Hasman, Augusto
Samartín, Margarita
Language :
English
Title :
Financial intermediation in a noverlapping generations model with transaction costs
Publication date :
2014
Journal title :
Journal of Economic Dynamics and Control
ISSN :
0165-1889
Publisher :
Elsevier, Netherlands
Peer reviewed :
Peer Reviewed verified by ORBi
Available on ORBilu :
since 08 December 2014

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