Working Paper: NBER ID: w14351
Authors: Rajnish Mehra; Facundo Piguillem; Edward C. Prescott
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 in intermediating the large amount of borrowing and lending between households. In 2007, in the United States, the amount intermediated was 1.7 times 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.
Keywords: financial intermediation; neoclassical growth; household borrowing; savings behavior
JEL Codes: E2; E44; E6; G1; G11; G12; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| intermediation costs (D40) | efficiency of the financial sector (G20) |
| efficiency of the financial sector (G20) | overall economic performance (P47) |
| demographic changes (J11) | intermediation dynamics (C69) |
| demographic changes (J11) | savings behavior (D14) |
| intermediation costs (D40) | household savings behavior (D14) |
| household borrowing rate (G59) | return on equity (D33) |
| bequest motive (D64) | capital accumulation (E22) |
| bequest motive (D64) | borrowing (G51) |