Endogenous Growth Model With Financial Intermediation

Abstract

In this paper, we analyse the simplest possible three-dimensional model of endogenous growth to account for the relationship between financial intermediation and economic growth. In our setting, households maximize an interim utility function and firms maximize profit. Households can save money only through banks which offer firms investment loans. We show that under very general assumptions, investments realized by firms depend not only on savings accumulated by banks but also on financial intermediation technology φ(θ). Using mathematical methods of dynamical systems, we found stationary states of the system and study their stability