Article citationsMore>>

M. Goodfriend and B. McCallum, “Banking and Interest Rates in Monetary Policy Analysis: A Quantitative Exploration,” Journal of Monetary Economics, Vol. 54, No. 5, July 2007, pp. 1480-1507. doi:10.1016/j.jmoneco.2007.06.009

has been cited by the following article:

• TITLE: The Modigliani-Miller Theorem with Financial Intermediation

  AUTHORS: John F. McDonald

  KEYWORDS: Modigliani-Miller Theorem, Financial Intermediation, Valuation

  JOURNAL NAME: Modern Economy, Vol.2 No.2, May 17, 2011

  ABSTRACT: This paper shows that, if firms borrow at an interest rate that is greater than the rate at which they can lend, the value of a firm declines with the amount borrowed. The model assumes the possibility that a firm may go bankrupt, which introduces the need for financial intermediation. A modified version of the homemade lev-erage examples introduced by Modigliani and Miller [2] is used to introduce the concept. A state-preference model is used for a more formal proof.