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Banks’ balance sheets and the macroeconomy in the Bank of Italy Quarterly Model

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  • Claudia Miani

    ()
    (Banca d'Italia)

  • Giulio Nicoletti

    ()
    (Banca d'Italia)

  • Alessandro Notarpietro

    ()
    (Banca d'Italia)

  • Massimiliano Pisani

    ()
    (Banca d'Italia)

Abstract

We investigate the relationship between macroeconomic conditions and banks' balance sheets by referring to a modified version of the Bank of Italy Quarterly Model (BIQM), regularly used for forecasting and policy analysis. In particular, we examine how regulatory bank capital and private sector default probabilities affect interest rates on loans and, ultimately, economic activity. To this end, we build an enriched version of the model to include a number of banking variables. The changes introduced in the model result in an amplification of the responses of macroeconomic variables to monetary policy and world demand shocks, although, in normal times, the effect is not large.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Questioni di Economia e Finanza (Occasional Papers) with number 135.

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Date of creation: Sep 2012
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Handle: RePEc:bdi:opques:qef_135_12

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Web page: http://www.bancaditalia.it
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Keywords: bank regulatory capital; loan interest rates; Italian economy.;

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  1. Vasco Curdia & Michael Woodford, 2010. "Credit Spreads and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 42(s1), pages 3-35, 09.
  2. Carling, Kenneth & Jacobson, Tor & Lindé, Jesper & Roszbach, Kasper, 2002. "Capital Charges under Basel II: Corporate Credit Risk Modelling and the Macro Economy," Working Paper Series 142, Sveriges Riksbank (Central Bank of Sweden).
  3. Alberto Locarno, 2011. "The macroeconomic impact of Basel III on the Italian economy," Rivista Bancaria - Minerva Bancaria, Istituto di Cultura Bancaria Francesco Parrillo, Istituto di Cultura Bancaria Francesco Parrillo, issue 5-6, november.
  4. Bolton, Patrick & Freixas, Xavier, 2001. "Corporate Finance and the Monetary Transmission Mechanism," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2892, C.E.P.R. Discussion Papers.
  5. Marcucci, Juri & Quagliariello, Mario, 2008. "Is bank portfolio riskiness procyclical: Evidence from Italy using a vector autoregression," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 18(1), pages 46-63, February.
  6. Skander J. Van den Heuvel, 2002. "Does bank capital matter for monetary transmission?," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue May, pages 259-265.
  7. Jacobson, Tor & Linde, Jesper & Roszbach, Kasper, 2005. "Exploring interactions between real activity and the financial stance," Journal of Financial Stability, Elsevier, Elsevier, vol. 1(3), pages 308-341, April.
  8. Hamerle, Alfred & Liebig, Thilo & Scheule, Harald, 2004. "Forecasting Credit Portfolio Risk," Discussion Paper Series 2: Banking and Financial Studies 2004,01, Deutsche Bundesbank, Research Centre.
  9. Gambacorta, Leonardo & Mistrulli, Paolo Emilio, 2004. "Does bank capital affect lending behavior?," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 13(4), pages 436-457, October.
  10. Claudia Miani & Stefano Siviero, 2010. "A non-parametric model-based approach to uncertainty and risk analysis of macroeconomic forecast," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 758, Bank of Italy, Economic Research and International Relations Area.
  11. Leonardo Gambacorta, 2004. "How Do Banks Set Interest Rates?," NBER Working Papers 10295, National Bureau of Economic Research, Inc.
  12. Calomiris, Charles W & Hubbard, R Glenn, 1995. "Internal Finance and Investment: Evidence from the Undistributed Profits Tax of 1936-37," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 68(4), pages 443-82, October.
  13. Petr Jakubík, 2006. "Does Credit Risk Vary with Economic Cycles? The Case of Finland," Working Papers IES, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies 2006/11, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Apr 2006.
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