Financial intermediation versus stock markets in a dynamic intertemporal model

Article Abstract:

Bhattacharya, Fulghieri and Rovelli have gone beyond financial intermediation models in their paper on intermediation and stock markets. Their work appears to have provided correct results, though one could change the assumptions slightly and assess whether their results are robust enough to withstand this. There are questions as to whether stationary equilibria are the only type of equilibria, and how time can be interpreted, that could be examined more fully. The way the authors have perceived the development of financial markets could also be questioned.

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Financial intermediation versus stock markets in a dynamic intertemporal model

Article Abstract:

Financial intermediation may be a way of improving market outcomes in an economy with lifetime uncertainty and overlapping generations, since intergenerational resources transfers can be made easier. Individual investors can also benefit from liquidity insurance. A paper by Bhattacharya, Fulghieri and Rovelli examines this issue and assumes lack of altruism toward new generations. Their paper examines conflicts of interest which would not be a problem if there were an intergenerational bequest motive.

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