Financial Intermediary Capital / Adriano A. Rampini, S. Viswanathan.

Format:

Book

Author/Creator:

Rampini, Adriano A.

Contributor:

National Bureau of Economic Research.

Viswanathan, S.

Series:

Working Paper Series (National Bureau of Economic Research) no. w23302.

NBER working paper series no. w23302

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2017.

Summary:

We propose a dynamic theory of financial intermediaries that are better able to collateralize claims than households, that is, have a collateralization advantage. Intermediaries require capital as they can borrow against their loans only to the extent that households themselves can collateralize the assets backing these loans. The net worth of financial intermediaries and the corporate sector are both state variables affecting the spread between intermediated and direct finance and the dynamics of real economic activity, such as investment, and financing. The accumulation of net worth of intermediaries is slow relative to that of the corporate sector. The model is consistent with key stylized facts about macroeconomic downturns associated with a credit crunch, namely, their severity, their protractedness, and the fact that the severity of the credit crunch itself affects the severity and persistence of downturns. The model captures the tentative and halting nature of recoveries from crises.

Notes:

Print version record

March 2017.