The neoclassical growth model is extended to include costly intermediated borrowing and lending between households. This is an important extension as substantial resources are used in intermediating the large amount of borrowing and lending between households. In 2007, in the United States, the amount intermediated was 1.7 times GNP, and the resources used in this intermediation amounted to at least 3.4 percent of GNP. The theory implies that financial intermediation services are an intermediate good and that the spread between borrowing and lending rates measures the efficiency of the financial sector.
- E44 - Financial Markets and the Macroeconomy
- G23 - Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- H62 - National Deficit; Surplus
- G10 - General Financial Markets: General (includes Measurement and Data)
- E20 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy: General (includes Measurement and Data)
- G11 - Portfolio Choice; Investment Decisions
- D31 - Personal Income, Wealth, and Their Distributions
- H00 - Public Economics: General
- G12 - Asset Pricing; Trading Volume; Bond Interest Rates
- E21 - Macroeconomics: Consumption; Saving; Wealth
- Federal Reserve Bank of Minneapolis. Research Department
- Federal Reserve Bank of Minneapolis
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