Financial Intermediation, Competition, And Risk: A General Equilibrium Exposition

Speaker:  Marcella Lucchetta - Universita' di Verona
  Wednesday, May 20, 2009 at 1:00 PM Biblioteca DSE, Palazzina 32 - Ex Caserma Passalacqua

We study a simple general equilibrium model in which investment in a risky technology is subject to moral hazard and banks can extract market power rents. We show that more bank competition results in lower economy-wide risk, lower bank capital ratios, more efficient production plans and Pareto-ranked real allocations. Perfect competition supports a second best allocation and optimal levels of bank risk and capitalization. These results are at variance with those obtained by a large literature that has studied a similar environment in partial equilibrium, they are empirically relevant, and carry significant implications for financial policy.

Joint paper with Gianni De Nicolo' - IMF, Washington DC - USA

Documents
Title Format  (Language, Size, Publication date)
paper  pdfpdf (it, 347 KB, 18/05/09)
slides  pdfpdf (it, 317 KB, 18/05/09)

Programme Director
Angelo Zago

Publication date
April 10, 2009

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