Abstract
Theory suggests that financial intermediation (FI) spurs economic growth by reducing investment frictions. Prior literature focuses on bank lending as a driver of economic growth, with limited success for US GDP. We augment bank balance sheet data with that from shadow banks, mutual and pension funds, insurers, and brokers, finding that aggregate FI assets lead GDP growth and forecast recessions up to three quarters in advance, although the weight of each FI group in the aggregate fluctuates. Aggregated FIs expand their total assets when the slope of the Treasury yield curve is upward sloping and the effective Federal funds rate is higher, thereby revealing the importance of monetary policy in the financial intermediation process. We further show that aggregate FI contains leading information about investment and consumption and predicts industrial production and unemployment.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
