Short-run and Long-run Effects of Banking in a New Keynesian Model
AbstractThis paper introduces both endogenous capital accumulation and deposit-in-advance requirements for investment in the banking model of Goodfriend and McCallum (2007). Impulse response functions from technology and monetary shocks show some attenuation effect due to the procyclical behavior of the marginal finance cost. In addition, an adverse financial shock produces sizeable declines in output, inflation and interest rates. In the long-run analysis, we find the following effects of banking intermediation: (i) the stock of capital increases to take advantage of its collateral services, and (ii) consumption and labor fall in response to the finance cost attached to purchases of goods. Using the baseline calibrated model, we show how a 10% increase in banking efficiency would result in a permanent welfare gain equivalent to 0.3% of output.
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Bibliographic InfoPaper provided by Departamento de Economía - Universidad Pública de Navarra in its series Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra with number 1002.
Date of creation: 2010
Date of revision:
Publication status: Published in
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Other versions of this item:
- Casares Miguel & Poutineau Jean-Christophe, 2011. "Short-Run and Long-Run Effects of Banking in a New Keynesian Model," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-41, May.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-09-25 (All new papers)
- NEP-BAN-2010-09-25 (Banking)
- NEP-CBA-2010-09-25 (Central Banking)
- NEP-MAC-2010-09-25 (Macroeconomics)
- NEP-MON-2010-09-25 (Monetary Economics)
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.:
- Fiorella De Fiore & Oreste Tristani, 2013.
"Optimal Monetary Policy in a Model of the Credit Channel,"
Royal Economic Society, vol. 123(571), pages 906-931, 09.
- De Fiore, Fiorella & Tristani, Oreste, 2009. "Optimal monetary policy in a model of the credit channel," Working Paper Series 1043, European Central Bank.
- Miguel Casares & Jean-Christophe Poutineau, 2011.
"Firm entry under financial frictions,"
Documentos de Trabajo - Lan Gaiak Departamento de EconomÃa - Universidad PÃºblica de Navarra
1102, Departamento de Economía - Universidad Pública de Navarra.
- Gerke, Rafael & Hammermann, Felix & Lewis, Vivien, 2012. "Robust monetary policy in a model with financial distress," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 318-325.
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