English, Article, Journal or magazine article edition: ON THE WELFARE AND DISTRIBUTIONAL IMPLICATIONS OF INTERMEDIATION COSTS Tiago V. de V. Cavalcanti; Anne P. Villamil

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Bookmark: http://trove.nla.gov.au/version/123332
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • ON THE WELFARE AND DISTRIBUTIONAL IMPLICATIONS OF INTERMEDIATION COSTS
Author
  • Tiago V. de V. Cavalcanti
  • Anne P. Villamil
Physical Description
  • preprint
Notes
  • This paper studies the distributional implications of intermediation costs. We built a "Bewley" model economy where individuals experience uninsurable idiosyncratic shocks on labor productivity and financial intermediation is costly. Individuals smooth consumption by making deposits to a financial intermediary in good times and by running down credit balances or getting loans in bad times. Higher intermediation costs (IC) increase the costs for individuals to insure against idiosyncratic shocks and to smooth consumption over time. When IC increase by a factor of 10 from its baseline value of 4% (US case), aggregate welfare decreases by less than 1% of the average consumption. For those at the bottom 1% of the wealth distribution the welfare costs are roughly 41% of their consumption, while for those at the top 1% it is -0.17%.
  • RePEc:anp:en2005:087
Language
  • English
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