Journal of Banking & Finance Vol. 35 No. 7 2011
Financial intermediation in the theory of the risk-free rate
Abstract
This paper constructs a general equilibrium model of the interaction between financial intermediaries and financial markets that sheds some light on the short-term volatility of real interest rates. The main findings of the paper are as follows. When financial intermediaries issue contingent (non-contingent) liabilities, an increase in the consumers’ relative risk aversion coefficient decreases (increases) the interest rate. Also, the interest rate rises when capitalists are less risk-averse and financial intermediaries are hit by a liquidity shock.
- DOI
- 10.1016/j.jbankfin.2010.11.009
- Volume
- 35
- Issue
- 7
- Pages
- 1663-1668
- Language
- en
- Sources
- bibtex:phds-export.bib crossref openalex