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Heterogeneous capital and misintermediation

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  • Guo, Feng
  • McCulloch, J.H.

Abstract

A perennial problem of financial markets is that of maturity mismatch, or misintermediation, a situation in which financial intermediaries fund long-term, illiquid loans with short-term liabilities. A previous theory concludes that misintermediation can be responsible for business cycles and yields procyclical behavior of surprises in real interest rates. This paper proposes a finite horizon structural model with the introduction of heterogeneous capital to formalize and develop that theory. An extended model with labor as well as a “harvesting” technology further investigates the impact of misintermediation on real factor prices. The model implied relationship between unanticipated changes in real interest rates and real outputs over time is examined in a subsequent empirical study, which provides preliminary evidence consistent with the hypothesis of misintermediation.

Suggested Citation

  • Guo, Feng & McCulloch, J.H., 2017. "Heterogeneous capital and misintermediation," Journal of Macroeconomics, Elsevier, vol. 53(C), pages 16-41.
    • Handle: RePEc:eee:jmacro:v:53:y:2017:i:c:p:16-41
    DOI: 10.1016/j.jmacro.2017.05.001
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    Cited by:

    1. Feng Guo, 2019. "Estimating yield curves of the U.S. Treasury securities: An interpolation approach," Review of Financial Economics, John Wiley & Sons, vol. 37(2), pages 297-321, April.

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    More about this item

    Keywords

    Misintermediation; Heterogeneous capital; Term structure of interest rates; Austrian business cycle theory;
    All these keywords.

    JEL classification:

    • B53 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Austrian
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G01 - Financial Economics - - General - - - Financial Crises

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