Financial Intermediaries and Transaction Costs

28 Pages Posted: 19 Feb 2009

See all articles by Augusto Hasman

Augusto Hasman

Charles III University of Madrid - Department of Business Administration

Margarita Samartín Sáenz

Universidad Carlos III de Madrid

Jos van Bommel

Universite du Luxembourg - Department of Economics

Date Written: February 15, 2009

Abstract

We present an overlapping generations model with spatial separation and agents who face liquidity risk to investigate the widely held belief that financial intermediaries exist because they save on transaction costs. We find that if agents only use a pure exchange mechanism, they engage in active portfolio duration rebalancing even when they do not need to consume. An intergenerational financial intermediary reduces the number of rebalancing transactions by catering to a diversified its client base. Our model also shows transaction costs can dampen cyclicality in exchange economies, and that intermediated economies are less cyclical still.

Keywords: Financial Intermediation, Overlapping Generations, Liquidity

JEL Classification: D91, G21, E43

Suggested Citation

Hasman, Augusto and Samartín Sáenz, Margarita and van Bommel, Jos, Financial Intermediaries and Transaction Costs (February 15, 2009). Available at SSRN: https://ssrn.com/abstract=1343974 or http://dx.doi.org/10.2139/ssrn.1343974

Augusto Hasman

Charles III University of Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

Margarita Samartín Sáenz

Universidad Carlos III de Madrid ( email )

E-28903 Getafe (Madrid)
Spain

Jos Van Bommel (Contact Author)

Universite du Luxembourg - Department of Economics ( email )

Luxembourg

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