Bank Capital, Agency Costs, and Monetary Policy
Evidence suggests that banks, like firms, face financial frictions when raising funds. The authors develop a quantitative, monetary business cycle model in which agency problems affect both the relationship between banks and firms and the relationship between banks and their depositors. As a result, bank capital and entrepreneurial net worth jointly determine aggregate investment, and are important determinants of the propagation of shocks. The authors find that the effects of monetary policy and technology shocks are dampened but more persistent in their model than in an economy where the information friction that banks face is reduced or eliminated. After documenting that the bank capital-asset ratio is countercyclical in the data, the authors show that their model, in which movements in this ratio are market-determined, can replicate the countercyclical ratio.
|Date of creation:||2004|
|Contact details of provider:|| Postal: 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada|
Phone: 613 782-8845
Fax: 613 782-8874
Web page: http://www.bank-banque-canada.ca/
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- Patrick Bolton & Xavier Freixas, 2006.
"Corporate Finance and the Monetary Transmission Mechanism,"
Review of Financial Studies,
Society for Financial Studies, vol. 19(3), pages 829-870.
- Patrick Bolton & Xavier Freixas, 2000. "Corporate finance and the monetary transmission mechanism," Economics Working Papers 511, Department of Economics and Business, Universitat Pompeu Fabra.
- Bolton, Patrick & Freixas, Xavier, 2001. "Corporate Finance and the Monetary Transmission Mechanism," CEPR Discussion Papers 2892, C.E.P.R. Discussion Papers.
- 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.
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- Ryo Kato, 2002. "Matlab code for the Carlstrom-Fuerst AER (1997) model," QM&RBC Codes 112, Quantitative Macroeconomics & Real Business Cycles.
- Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
- Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
- Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
- Ben S. Bernanke & Mark L. Gertler, 1985. "Banking in General Equilibrium," NBER Working Papers 1647, National Bureau of Economic Research, Inc.
- Berger, Allen N, 2003. " The Economic Effects of Technological Progress: Evidence from the Banking Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(2), pages 141-176, April.
- Allen N. Berger, 2002. "The economic effects of technological progress: evidence from the banking industry," Finance and Economics Discussion Series 2002-50, Board of Governors of the Federal Reserve System (U.S.).
- Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-132, March. Full references (including those not matched with items on IDEAS)
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