EJM Lecture: Financial Cycles with Heterogeneous Intermediaries

In this lecture, Hélène Rey shows that there is substantial heterogeneity in risk taking across different financial intermediaries and that this heterogeneity matters for systemic risk. She develops a simple and tractable macro finance model with heterogeneous intermediaries, which can generate “good booms” and “bad booms”,  substantial time variations in risk premia and a clear link between cost of financing and deregulation and financial instability.