Financial Intermediation in the Theory of the Risk-Free Rate

Marini, François

Marini, François (2011), Financial Intermediation in the Theory of the Risk-Free Rate, Journal of Banking and Finance, 35, 7, p. 1663-1668. http/dx.doi.org/10.1016/j.jbankfin.2010.11.009

Type

Article accepté pour publication ou publié

Date

2011-07

Journal name

Journal of Banking and Finance

Volume

Number

Publisher

Elsevier

Pages

1663-1668

Abstract (EN)

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.

Subjects / Keywords

Financial intermediation; Risk sharing; Risk-free rate; Risk aversion; Liquidity preference; Financial markets

JEL

D53 - Financial Markets
G12 - Asset Pricing; Trading Volume; Bond Interest Rates