Short-Run and Long-Run Effects of Banking in a New Keynesian Model
AbstractThis paper introduces both endogenous capital accumulation and deposit-in-advance requirements for investment in the banking model of Goodfriend and McCallum (2007). Impulse response functions from technology and monetary shocks show some attenuation effect due to the procyclical behavior of the marginal finance cost. In addition, an adverse financial shock produces sizeable declines in output, inflation and interest rates. In the long-run analysis, we finnd the following effects of banking intermediation: (i) the stock of capital increases to take advantage of its collateral services, and (ii) consumption and labor fall in response to the finance cost attached to purchases of goods. Using the baseline calibrated model, we show how a 10 percent increase in banking efficiency would result in a permanent welfare gain equivalent to 0.3 percent of output.
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Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.
Volume (Year): 11 (2011)
Issue (Month): 1 (May)
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Web page: http://www.degruyter.com
Other versions of this item:
- Miguel Casares & Jean-Christophe Poutineau, 2010. "Short-run and Long-run Effects of Banking in a New Keynesian Model," Documentos de Trabajo - Lan Gaiak Departamento de EconomÃa - Universidad PÃºblica de Navarra 1002, Departamento de Economía - Universidad Pública de Navarra.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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"Optimal monetary policy in a model of the credit channel,"
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1043, European Central Bank.
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- Miguel Casares & Jean-Christophe Poutineau, 2011.
"Firm entry under financial frictions,"
Documentos de Trabajo - Lan Gaiak Departamento de EconomÃa - Universidad PÃºblica de Navarra
1102, Departamento de Economía - Universidad Pública de Navarra.
- Gerke, Rafael & Hammermann, Felix & Lewis, Vivien, 2012. "Robust monetary policy in a model with financial distress," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 318-325.
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