Intermediated Quantities and Returns

Abstract

__________________________________________________________________________There is a large amount of intermediated borrowing and lending between households. Some of it is intergenerational, but most is between older households. The average difference in borrowing and lending rates is over 2 percent. In this paper, we develop a model economy that displays these facts and matches not only the returns on assets but also their quantities. The heterogeneity giving rise to borrowing and lending and differences in equity holdings depends on differences in the strength of the bequest motive. In equilibrium, the lenders are annuity holders and the borrowers are those who have equity holdings, who live off its income when retired, and who leave a bequest. The borrowing rate and return on equity are the same in the absence of aggregate uncertainty. The divergence between borrowing and lending rates can thus give rise to an equity premium, even in a world without aggregate uncertainty. _____________________________________________________________________________________

Firm size, bank size, and financial development

“…From (37), dz * b /dz * e < 0, so z * e decreases (increases) and z * b increases (decreases) with a rise in T (A) given A (T ). From (26) and (27), dL(z * e )/dz * e = (1−a)q (1+µ−q) (…”

Credit Spreads and Monetary Policy

“…Here is an exogenous factor, and this represents a second kind of purely financial disturbance. Regardless of the specification of , in our numerical analyses we assume a steady‐state credit spread equal to 2.0 percentage points per annum, following Mehra, Piguillem, and Prescott (2008) 18 . (Combined with our assumption that “types” persist for 10 years on average, this implies a steady‐state “marginal utility gap”, so that there would be a nontrivial welfare gain from transferring further resources from savers to borrowers.…”

“…18 18 Mehra, Piguillem, and Prescott (2008) argue for this calibration by dividing the net interest income of financial intermediaries (as reported in the National Income and Product Accounts) by a measure of aggregate private credit (as reported in the Flow of Funds). …”

Quantifying the Impact of Financial Development on Economic Development

“…The views expressed in this paper are those of the authors and do not necessarily re ‡ect those of the Federal Reserve Bank of St. Louis or the Federal Reserve System. Mehra et al (2009). Speci…cally, the spread is de…ned to be "Intermediation services associated with household borrowing and lending" divided by the "Total amount intermediated" (see de…nitions of these below).…”