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The business cycle implications of banks’ maturity transformation

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  • Andreasen, Martin

    ()
    (Bank of England)

  • Ferman, Marcelo

    ()
    (LSE)

  • Zabczyk, Pawel

    ()
    (Bank of England)

Abstract

This paper develops a DSGE model in which banks use short-term deposits to provide firms with long-term credit. The demand for long-term credit arises because firms borrow in order to finance their capital stock which they only adjust at infrequent intervals. We show within a real business cycle framework that maturity transformation in the banking sector in general attenuates the output response to a technological shock. Implications of long-term nominal contracts are also examined in a New Keynesian version of the model, where we find that maturity transformation reduces the real effects of a monetary policy shock.

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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 446.

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Length: 43 pages
Date of creation: 19 Mar 2012
Date of revision:
Handle: RePEc:boe:boeewp:0446

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Keywords: Banks; DSGE model; financial frictions; firm heterogeneity; maturity transformation;

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Cited by:
  1. Alessandri, Piergiorgio & Nelson, Benjamin, 2012. "Simple banking: profitability and the yield curve," Bank of England working papers, Bank of England 452, Bank of England.
  2. Andreasen, Martin & Ferman, Marcelo & Zabczyk, Pawel, 2012. "The business cycle implications of banks’ maturity transformation," Bank of England working papers, Bank of England 446, Bank of England.
  3. Holmberg, Ulf, 2012. "The Credit Market and the Determinants of Credit Crunches: An Agent Based Modeling Approach," UmeÃ¥ Economic Studies 836, Umeå University, Department of Economics.
  4. Kühl, Michael, 2014. "The financial accelerator and market-based debt instruments: A role for maturities?," Discussion Papers 08/2014, Deutsche Bundesbank, Research Centre.

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