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Implications on Households of Bank's Asset Substitution

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  • Santiago Caicedo

    ()

  • David Pérez-Reyna

    ()

Abstract

In this paper we develop a DSGE model to analyze the welfare implications over households that bank's asset recomposition might have. We model a representative bank that potentially faces liquidity dificulties due to a mismatch between credits issued to firms and deposits supplied by households. This bank has a portfolio consisting of loans and bonds. The results show that positive liquidity shocks, driven by changes in the household preferences, affect the bank's asset allocation decisions and are beneficial to households. Similarly, when the bond's return rate increases, there is a substitution effect that lowers the loan to bond ratio, but despite this, the bank's intermediation activity increases inducing a positive effect over the household's welfare.

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Paper provided by Banco de la Republica de Colombia in its series Temas de Estabilidad Financiera with number 053.

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Handle: RePEc:bdr:temest:053

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Related research

Keywords: bank asset recomposition; DSGE model with banking sector; loans deposit mismatch; liquidity shock Classification JEL: D58; E32; E44.;

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  1. Diaz-Gimenez, Javier & Prescott, Edward C. & Fitzgerald, Terry & Alvarez, Fernando, 1992. "Banking in computable general equilibrium economies," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 533-559.
  2. Adriana María Corredor-Waldron & David Pérez-Reyna, . "El mercado de crédito comercial y las restricciones de endeudamiento en Colombia," Temas de Estabilidad Financiera 042, Banco de la Republica de Colombia.
  3. Agustín Saade Ospina & David Pérez-Reyna, . "Cambios en los incentivos de los bancos como consecuencia de modificaciones en los esquemas de encaje," Temas de Estabilidad Financiera 041, Banco de la Republica de Colombia.
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