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Abstract

This work develops a portfolio model of the banking firm where both the size and composition of the portfolio are jointly determined. The model provides a quite simple micro-foundation of the credit channel of the transmission of monetary policy. It allows analysing the pricing policies of the banking firm, and shows how interest rate shocks and credit quality shocks (the real shocks that change expected default costs) affect the equilibrium level of loans and deposits.

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File URL: http://128.118.178.162/eps/fin/papers/0411/0411025.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0411025.

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Length: 51 pages
Date of creation: 11 Nov 2004
Date of revision:
Handle: RePEc:wpa:wuwpfi:0411025

Note: Type of Document - pdf; pages: 51
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Web page: http://128.118.178.162

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Find related papers by JEL classification:

• G - Financial Economics
• E - Macroeconomics and Monetary Economics

This paper has been announced in the following NEP Reports:

• NEP-ALL-2004-11-22 (All new papers)
• NEP-FIN-2004-11-22 (Finance)

References

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1. Berlin, Mitchell & Mester, Loretta J., 1998. "On the profitability and cost of relationship lending," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 873-897, August.
   
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22. Hoffman, Dennis L. & Rasche, Robert H. & Tieslau, Margie A., 1995. "The stability of long-run money demand in five industrial countries," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 317-339, April.
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24. Hess, Alan C, 1995. "Portfolio Theory, Transaction Costs, and the Demand for Time Deposits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1015-32, November.
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27. Scott Freeman & Finn E. Kydland, 1998. "Monetary aggregates and output," Working Papers 1998-013, Federal Reserve Bank of St. Louis.
    
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    • Mark J. Flannery, 1991. "Debt maturity and the deadweight cost of leverage: optimally financing banking firms," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.

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