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Intra-Financial Lending, Credit, and Capital Formation

Author

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  • Juan A. Montecino

    (University of Massachusetts, Amherst)

  • Gerald Epstein

    (University of Massachusetts, Amherst)

Abstract

This paper examines the effects of intra-financial lending claims between financial institutions on aggregate investment and credit to the non-financial sector in the United States. Building on Montecino, Epstein, and Levina (2014) we document a large growth in intra-financial assets beginning in the early 1980s. Using a vector autoregression model, we find that intra-financial lending is negatively related to gross capital formation and present evidence that this operates through a credit channel. However, we also find evidence of a structural break around the year 2000. Rolling impulse response functions suggest the presence of two alternative regimes over the post-war period: a capital diversion.

Suggested Citation

  • Juan A. Montecino & Gerald Epstein, 2014. "Intra-Financial Lending, Credit, and Capital Formation," Working Papers Series 21, Institute for New Economic Thinking.
    • Handle: RePEc:thk:wpaper:21
    DOI: 10.2139/ssrn.2682877
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    References listed on IDEAS

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    1. Gary Gorton, 2008. "The panic of 2007," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 131-262.
    2. Gerald A. Epstein & Tom Schlesinger & Matías Vernengo (ed.), 2014. "Banking, Monetary Policy and the Political Economy of Financial Regulation," Books, Edward Elgar Publishing, number 13460.
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    15. Juan Antonio Montecino & Gerald Epstein & Iren Levina, 2016. "Long-Term Trends in Intra-Financial Sector Lending in the United States (1950–2012)," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 42(4), pages 611-629, September.
    16. Mr. Tamim Bayoumi & Mr. Ashok Vir Bhatia, 2012. "Leverage? What Leverage? A Deep Dive into the U.S. Flow of Funds in Search of Clues to the Global Crisis," IMF Working Papers 2012/162, International Monetary Fund.
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    18. Gary Gorton, 2008. "The panic of 2007," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 131-262.
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    Cited by:

    1. Daniel Carvalho, 2022. "Intra-financial assets and the intermediation role of the financial sector," Trinity Economics Papers tep0622, Trinity College Dublin, Department of Economics.
    2. Amaia Altuzarra & Patricia Peinado & Carlos Rodriguez & Felipe Serrano, 2016. "Changes in the relationship between the financial and the real sector and the present financial crisis in the European Union," Working papers wpaper159, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    3. Juan Antonio Montecino & Gerald Epstein & Iren Levina, 2016. "Long-Term Trends in Intra-Financial Sector Lending in the United States (1950–2012)," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 42(4), pages 611-629, September.

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    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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