The Role of Financial Intermediaries in Amplifying and Transmitting Economic Fluctuations

Since its inception, the Modigliani-Miller capital structure irrelevancy principle has limited researchersinterest in the role of \u85nancial intermedi-aries in macroeconomics. However, due to the spread of \u85nancial crises in emerging markets in the 1980s and 1990s, and the global \u85nancial collapse of 2008, the focus of much academic work has turned to rigorously mod-eling these entities. This paper surveys the past and current literature on all types of \u85nancial intermediaries (market makers, traditional banks, and hedge funds, among others) and discusses their role in dissemination of asymmetric information, real business cycle uctuations, and \u85nancial crashes and contagion