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In this paper, the authors examine the impact of financial market development on capital accumulation and inflation. In particular, they explore this issue in a setting in which banks provide risk pooling services. Furthermore, money overcomes incomplete information to facilitate transactions between individuals. In contrast to previous work, they incorporate a market for equity by allowing individuals to trade capital across generations. Interestingly, they find that the quantitative impact of the stock market may be indeterminate - the economy may respond with significant gains in capital accumulation or relatively little. Consequently, it is not clear how much financial development will drive down inflation in the long-run.
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