Is the net worth of financial intermediaries more important than that of non-financial firms?
AbstractTo explore the relative macroeconomic importance of financial intermediaries' (FIs’) net worth to that of non-financial firms (entrepreneurs), we extend the financial accelerator model of Bernanke, et al. (1999), such that both FIs’ and entrepreneurs rely on costly external debt. Our model, which is calibrated to the U.S. economy, highlights two features of the FIs’ net worth. First, the relative size of FIs' net worth as compared to entrepreneurial net worth, namely, the net- worth distribution in the economy, is important for the financial accelerator effect. Second, a shock to the FIs' net worth has greater aggregate impact than that to entrepreneurial net worth. The key reason for these findings is the low net worth of FIs’ in the United States. Our results imply that the ongoing regulatory reforms that protect banks' net worth from irrational exuberance or foster its accumulation are beneficial for macroeconomic stability.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 161.
Length: 43 pages
Date of creation: 2013
Date of revision:
This paper has been announced in the following NEP Reports:
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.:
- Brzoza-Brzezina, Michał & Kolasa, Marcin & Makarski, Krzysztof, 2013.
"The anatomy of standard DSGE models with financial frictions,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 37(1), pages 32-51.
- Michał Brzoza-Brzezina & Marcin Kolasa & Krzysztof Makarski, 2011. "The anatomy of standard DSGE models with financial frictions," National Bank of Poland Working Papers 80, National Bank of Poland, Economic Institute.
- Van den Heuvel, Skander J., 2008.
"The welfare cost of bank capital requirements,"
Journal of Monetary Economics,
Elsevier, vol. 55(2), pages 298-320, March.
- Carlstrom, Charles T & Fuerst, Timothy S, 1997.
"Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis,"
American Economic Review,
American Economic Association, vol. 87(5), pages 893-910, December.
- Charles T. Carlstrom & Timothy S. Fuerst, 1996. "Agency costs, net worth, and business fluctuations: a computable general equilibrium analysis," Working Paper 9602, Federal Reserve Bank of Cleveland.
- Ryo Kato, 2002. "Matlab code for the Carlstrom-Fuerst AER (1997) model," QM&RBC Codes 112, Quantitative Macroeconomics & Real Business Cycles.
- Naohisa Hirakata & Nao Sudo & Kozo Ueda, 2013.
"Capital Injection, Monetary Policy, and Financial Accelerators,"
International Journal of Central Banking,
International Journal of Central Banking, vol. 9(2), pages 101-145, June.
- Naohisa Hirakata & Nao Sudo & Kozo Ueda, 2011. "Capital Injection, Monetary Policy, and Financial Accelerators," IMES Discussion Paper Series 11-E-10, Institute for Monetary and Economic Studies, Bank of Japan.
- Naohisa Hirakata & Nao Sudo & Kozo Ueda, 2011.
"Do banking shocks matter for the U.S. economy?,"
Globalization and Monetary Policy Institute Working Paper
86, Federal Reserve Bank of Dallas.
- Zeng, Zhixiong, 2010.
"A theory of the non-neutrality of money with banking frictions and bank recapitalization,"
24752, University Library of Munich, Germany.
- Zeng, Zhixiong, 2011. "A theory of the non-neutrality of money with banking frictions and bank recapitalization," MPRA Paper 33471, University Library of Munich, Germany.
- Chen, Nan-Kuang, 2001. "Bank net worth, asset prices and economic activity," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 415-436, October.
- Zhang, Longmei, 2009. "Bank capital regulation, the lending channel and business cycles," Discussion Paper Series 1: Economic Studies 2009,33, Deutsche Bundesbank, Research Centre.
- Gilchrist, Simon & Leahy, John V., 2002. "Monetary policy and asset prices," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 75-97, January.
- David Aikman & Matthias Paustian, 2006. "Bank capital, asset prices and monetary policy," Bank of England working papers 305, Bank of England.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Chapman).
If references are entirely missing, you can add them using this form.