0 the process by which money that has been invested in a bank, etc. is lent to people, companies, etc. who want to borrow it:
This reduces the costs of financial intermediation and raises the overall return on investment.
Here we see that the increased return to intermediation creates a burst of investment at impact.
The unconditional correlations are closer to those observed only when the intermediation shock is relatively unimportant.
These mixed economies match unconditional observations better, but only if the intermediation shocks are of secondary importance.
If trade frictions are low, conducting trade in the unorganized sector is so attractive that it may not generate sufficient profits for the intermediation business.
When trade frictions are low, conducting trade in the unorganized sector is so attractive that it may not generate sufficient profits for the intermediation business.
Such a framework allows for the existence of credit rationing and gives an explicit allocative function to financial intermediation.
Here we consider a variety of (imperfect) measures of the intermediation shocks that drive our model.
