208-2011-L13

208-2011-L13 - Social planner’s problem n Social planner...

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Econ 208 Marek Kapicka Lecture 13 Financial Intermediation
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A Liquidity Problem Timing
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A Liquidity Problem Preferences
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A Liquidity Problem Preferences
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1. Autarchic Solution
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1. Autarchic Solution The Budget Constraint
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1. Autarchic Solution
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2. A Market Solution
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2. A Market Solution Period 1 problem
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2. A Market Solution Period 1: A Market for Long Assets  Supply Demand
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2. A Market Solution Period 1 Problem
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2. A Market Solution Period 0 problem
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2. A Market Solution The equilibrium
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2. A Market Solution Market vs. Autarchy Autarchic choices Market Equilibrium
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2. A Market Solution Market vs. Autarchy n Market can achieve more risk sharing  than autarchy n We will see that we can do even better  than that n The amount of liquidity provided by the  market is not efficient
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3. The Efficient Solution What is efficiency?
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3. The Efficient Solution
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Unformatted text preview: Social planner’s problem n Social planner: n Maximize the expected utility Subject to n WLOG assume that late consumers only consume in period 2 3. The Efficient Solution Social Planner’s problem n Social planner: n Maximize the expected utility n First order condition 3. The Efficient Solution Too little liquidity in the market solution Market Equilibrium Efficient Solution 3. The Efficient Solution Too much liquidity in the market solution Market Equilibrium Efficient Solution 3. The Efficient Solution The right amount of liquidity in the market solution Market Equilibrium = Efficient solution 3. The Efficient Solution What next? n In general, the market solution is not efficient n How to get efficiency? Can banking improve on the market solution?...
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This note was uploaded on 12/26/2011 for the course ECON 208 taught by Professor Staff during the Fall '08 term at UCSB.

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208-2011-L13 - Social planner’s problem n Social planner...

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