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Banks� balance sheets and the macroeconomy in the Bank of Italy Quarterly Model

Author

Listed:
  • Claudia Miani

    () (Banca d'Italia)

  • Giulio Nicoletti

    () (Banca d'Italia)

  • Alessandro Notarpietro

    () (Banca d'Italia)

  • Massimiliano Pisani

    () (Banca d'Italia)

Abstract

We investigate the relationship between macroeconomic conditions and banks' balance sheets by referring to a modified version of the Bank of Italy Quarterly Model (BIQM), regularly used for forecasting and policy analysis. In particular, we examine how regulatory bank capital and private sector default probabilities affect interest rates on loans and, ultimately, economic activity. To this end, we build an enriched version of the model to include a number of banking variables. The changes introduced in the model result in an amplification of the responses of macroeconomic variables to monetary policy and world demand shocks, although, in normal times, the effect is not large.

Suggested Citation

  • Claudia Miani & Giulio Nicoletti & Alessandro Notarpietro & Massimiliano Pisani, 2012. "Banks� balance sheets and the macroeconomy in the Bank of Italy Quarterly Model," Questioni di Economia e Finanza (Occasional Papers) 135, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:opques:qef_135_12
    as

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    File URL: http://www.bancaditalia.it/pubblicazioni/qef/2012-0135/QEF_135.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    bank regulatory capital; loan interest rates; Italian economy.;

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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