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The business cycle implications of banks' maturity transformation

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  • Andreasen, Martin M.
  • Ferman, Marcelo
  • Zabczyk, Pawel

Abstract

This paper develops a DSGE model where 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. Within an RBC framework, we show that maturity transformation in the banking sector dampens the consumption and investment response to a technology shock. Our model also implies that the average deposit rate is less persistent than the average long-term loan rate, which we show is in line with corporate interest rate data in the US. JEL Classification: E32, E44, E22, G21

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1489.

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Date of creation: Nov 2012
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Handle: RePEc:ecb:ecbwps:20121489

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Keywords: banks; DSGE model; Financial Frictions; long-term credit; maturity transformation;

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References

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Cited by:
  1. Martin Andreasen & Marcelo Ferman & Pawel Zabczyk, 2013. "The Business Cycle Implications of Banks' Maturity Transformation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(4), pages 581-600, October.
  2. Alessandri, Piergiorgio & Nelson, Benjamin, 2012. "Simple banking: profitability and the yield curve," Bank of England working papers 452, Bank of England.
  3. Kühl, Michael, 2014. "The financial accelerator and market-based debt instruments: A role for maturities?," Discussion Papers 08/2014, Deutsche Bundesbank, Research Centre.
  4. 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.

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