NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Financial Intermediation and Aggregate Fluctuations: A Quantative Analysis

Russell Cooper, Joao Ejarque

NBER Working Paper No. 4819
Issued in August 1994
NBER Program(s):   EFG

This paper investigates the quantitative implications of two business cycle models in which aggregate fluctuations arise in response to variations in the process of financial intermediation. In the first, fundamental shocks in the capital accumulation process lead to fluctuations in the real returns from intermediated investment. For this economy, we find that the correlations produced are not consistent with observations of the U.S. economy. In particular, consumption is not smoother than output, investment is negatively correlated with output, variations in the capital stock are quite large and interest rates are procyclical. In an economy with both intermediation and total factor productivity shocks, the correlations we produce are closer to those observed in the U.S. economy only when the intermediation shock is relatively unimportant. In the second economy, variations in the returns to intermediation are part of a sunspot equilibrium. Fluctuations here are driven by self-fulfilling beliefs by private agents regarding the returns to intermediation as in an economy beset by banking crises. For this non-linear economy, we find that the correlations are closer to those observed but the variability of capital relative to output is still too large.

download in pdf format
   (457 K)

email paper

This paper is available as PDF (457 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w4819

Published: Cooper, Russell & Ejarque, Jo o, 2000. "Financial Intermediation And Aggregate Fluctuations: A Quantitative Analysis," Macroeconomic Dynamics, Cambridge University Press, vol. 4(04), pages 423-447, December.

Users who downloaded this paper also downloaded these:
Cooper and Ross w3921 Bank Runs: Liquidity and Incentives
Jermann and Quadrini w15338 Macroeconomic Effects of Financial Shocks
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us