TY  - UNPD
A1  - Dindo, Pietro
A1  - Modena, Andrea
A1  - Pelizzon, Loriana
T1  - Risk pooling, leverage, and the business cycle
T2  - SAFE working paper series ; No. 271
N2  - This paper studies the impact of financial sector size and leverage on business cycles and risk-free rates dynamics. We model a general equilibrium productive economy where financial intermediaries provide costly risk mitigation to households by pooling the idiosyncratic risks of their investment activities. We find that leverage amplifies variations of intermediaries’ relative size, but may also mitigate the business cycle. Moreover, it makes risk-free rates pro-cyclical. Households benefit the most when the financial sector is neither too small, thus avoiding high consumption fluctuations and costly mitigation, nor too big, so that fewer resources are lost after intermediation costs.
T3  - SAFE working paper - 271 
KW  - Business Cycle
KW  - Frictions
KW  - Leverage
KW  - Mitigation
KW  - Risk Pooling
Y1  - 2020
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/53371
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-533710
IS  - This version: 25th February 2020
PB  - SAFE
CY  - Frankfurt am Main
ER  -