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Financial Intermediation and Macroeconomic Analysis (2011)
| Venue: | Journal of Economic Perspectives, American Economic Association |
| Citations: | 31 - 2 self |
BibTeX
@ARTICLE{Woodford11financialintermediation,
author = {Michael Woodford},
title = {Financial Intermediation and Macroeconomic Analysis},
journal = {Journal of Economic Perspectives, American Economic Association},
year = {2011},
pages = {21--44}
}
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Abstract
curriculum, but they have often been presented as mainly of historical interest, or primarily of relevance to emerging markets. However, the recent financial crisis has made it plain that even in economies like the United States, significant disruptions of financial intermediation remain a possibility. Understanding such phenomena and the possible policy responses requires the use of a macroeconomic framework in which financial intermediation matters for the allocation of resources. In this paper, I first discuss why neither standard macroeconomic models, that abstract from financial intermediation, nor traditional models of the “bank lending channel ” are adequate as a basis for understanding the recent crisis. I argue that instead we need models in which intermediation plays a crucial role, but in which intermediation is modeled in a way that better conforms to current institutional realities. In particular, we need models that recognize that a market-based financial system--- one in which intermediaries fund themselves by selling securities in competitive markets, rather than collecting deposits subject to reserve requirements--- is not the same as a frictionless system.
Keyphrases
financial intermediation macroeconomic analysis competitive market market-based financial system macroeconomic framework traditional model historical interest current institutional reality recent financial crisis possible policy response standard macroeconomic model bank lending channel frictionless system united state financial intermediation matter recent crisis significant disruption crucial role
