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DYNAMICS OF A SIMPLE ENDOGENOUS GROWTH MODEL WITH FINANCIAL INTERMEDIATION

Published online by Cambridge University Press:  07 August 2019

Dominika Byrska Open the ORCID record for Dominika Byrska [Opens in a new window] ,
Adam Krawiec Open the ORCID record for Adam Krawiec [Opens in a new window]  and
Marek Szydłowski Open the ORCID record for Marek Szydłowski [Opens in a new window]
Dominika Byrska
Affiliation:
Jagiellonian University
Adam Krawiec*
Affiliation:
Jagiellonian University
Marek Szydłowski
Affiliation:
Jagiellonian University
*
Address correspondence to: Adam Krawiec, Institute of Economics, Finance and Management, Jagiellonian University, Lojasiewicza 4, 30-348 Krakow, Poland. e-mail: [email protected]. Phone. +48 12 6645763.
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Abstract

We study an impact of the financial intermediation on economic growth. We assume the simple model of the economic growth in the form of an autonomous dynamical system with a financial sector represented by banks and real sector represented by households and firms. We assume that financial intermediation services are described by financial intermediation technology which is a function depending on the share of labor employed by banks. Investments realized by firms depend not only on savings accumulated by banks but also on financial intermediation technology. We obtain a three-dimensional dynamical system and analyze the existence of a saddle equilibrium in the growth process associated with financial intermediation. Using mathematical methods of dynamical systems, we analyze growth paths, and we study the stationary states of the system and their stability. We found that equilibrium is reached only by trajectories located on two submanifolds. The resulting analysis provides an insight into the saddle solution with a stable incoming separatrix lying on one of the invariant manifolds.

Keywords

Endogenous GrowthFinancial IntermediationDynamical SystemsSaddle Equilibrium
Type
Articles
Information
Macroeconomic Dynamics , Volume 25 , Issue 5 , July 2021 , pp. 1288 - 1302
Copyright
© Cambridge University Press 2019

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Footnotes

The authors acknowledge the support of the Narodowe Centrum Nauki (National Science Centre Poland) project no. 2014/15/B/HS4/04264.

References

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