Credit and Banking in a DSGE Model of the Euro Area
This paper studies the role of credit supply factors in business cycle fluctuations using a dynamic stochastic general equilibrium (DSGE) model with financial frictions enriched with an imperfectly competitive banking sector. Banks issue collateralized loans to both households and firms, obtain funding via deposits, and accumulate capital out of retained earnings. Loan margins depend on the banks' capital-to-assets ratio and on the degree of interest rate stickiness. Balance-sheet constraints establish a link between the business cycle, which affects bank profits and thus capital, and the supply and cost of loans. The model is estimated with Bayesian techniques using data for the euro area. The analysis delivers the following results. First, the banking sector and, in particular, sticky rates attenuate the effects of monetary policy shocks, while financial intermediation increases the propagation of supply shocks. Second, shocks originating in the banking sector explain the largest share of the contraction of economic activity in 2008, while macroeconomic shocks played a limited role. Third, an unexpected destruction of bank capital may have substantial effects on the economy. Copyright (c) 2010 The Ohio State University.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 42 (2010)
Issue (Month): s1 (09)
|Contact details of provider:|| Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879|
References listed on IDEAS
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.:
- De Bandt, Olivier & Davis, E. Philip, 2000. "Competition, contestability and market structure in European banking sectors on the eve of EMU," Journal of Banking & Finance, Elsevier, vol. 24(6), pages 1045-1066, June.
- Roger Aliaga‐Díaz & María Pía Olivero, 2010. "Macroeconomic Implications of “Deep Habits” in Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(8), pages 1495-1521, December.
- Asli Demirgüç-Kunt & Luc Laeven & Ross Levine, 2004.
"Regulations, market structure, institutions, and the cost of financial intermediation,"
Federal Reserve Bank of Cleveland, pages 593-626.
- Demirguc-Kunt, Asli & Laeven, Luc & Levine, Ross, 2004. "Regulations, Market Structure, Institutions, and the Cost of Financial Intermediation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 593-622, June.
- Asli Demirguc-Kunt & Luc Laeven & Ross Levine, 2003. "Regulations, Market Structure, Institutions, and the Cost of Financial Intermediation," NBER Working Papers 9890, National Bureau of Economic Research, Inc.
- von Thadden, Ernst-Ludwig, 2004.
"Asymmetric information, bank lending and implicit contracts: the winner's curse,"
Finance Research Letters,
Elsevier, vol. 1(1), pages 11-23, March.
- Ernst-Ludwig VON THADDEN, 1998. "Asymmetric Information, Bank Lending and Implicit Contracts : The Winner's Curse," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9809, Université de Lausanne, Faculté des HEC, DEEP.
- Skander Van den Heuvel, 2005.
"The Welfare Cost of Bank Capital Requirements,"
2005 Meeting Papers
880, Society for Economic Dynamics.
- Stephanie Schmitt-Grohé & Martín Uribe, 2006.
"Optimal Fiscal and Monetary Policy in a Medium-Scale Macroeconomic Model,"
in: NBER Macroeconomics Annual 2005, Volume 20, pages 383-462
National Bureau of Economic Research, Inc.
- Schmitt-Grohé, Stephanie & Uribe, Martín, 2006. "Optimal fiscal and monetary policy in a medium-scale macroeconomic model," Working Paper Series 0612, European Central Bank.
When requesting a correction, please mention this item's handle: RePEc:mcb:jmoncb:v:42:y:2010:i:s1:p:107-141. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.