Working Paper: CEPR ID: DP9792
Authors: Thomas Philippon
Abstract: A quantitative investigation of financial intermediation in the U.S. over the past 130 years yields the following results : (i) the finance industry?s share of GDP is high in the 1920s, low in the 1950s and 1960s, and high again in the 1990s and 2000s; (ii) most of these variations can be explained by corresponding changes in the quantity of intermediated assets (equity, household and corporate debt, assets yielding liquidity services); (iii) intermediation is produced under constant returns to scale with an annual average cost comprised between 1.5% and 2% of outstanding assets; (iv) quality adjustments that take into account changes in the characteristics of firms and households are quantitatively important; and (v) the unit cost of intermediation has not decreased over the past 30 years.
Keywords: economic growth; informativeness; investment; price efficiency
JEL Codes: E2; G2; N2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| finance industry's share of GDP (G29) | quantity of intermediated assets (E22) |
| quantity of intermediated assets (E22) | finance industry's share of GDP (G29) |
| finance industry's share of GDP (G29) | economic growth (O49) |
| quantity of intermediated assets (E22) | economic growth (O49) |
| unit cost of intermediation (G21) | economic growth (O49) |
| advancements in information technology (L86) | unit cost of intermediation (G21) |