DYNAMIC BANKING - A RECONSIDERATION

Financially intermediated and stock market consumption-investment allo cations, with and without governmental interventions, are compared in a welfare sense in overlapping generation economies with (and without) shocks to agents' intertemporal preferences. We first show that; in e conomies with preference shocks governmental interventions subject to the same informational requirements as those imposed on financial inte rmediaries, lead to stock! market allocations that are not inferior to those attained under financial intermediation Second we argue that th e necessary interventions are qualitatively lu, different from those r equired to implement stationary optimal allocations in OLG models with out shocks to agents' intertemporal consumption preferences.