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Banks’ liquidity transformation rate: determinants and impact on lending

Author

Listed:
  • Raffaele Lenzi

    (Bank of Italy)

  • Stefano Nobili

    (Bank of Italy)

  • Filippo Perazzoli

    (Bank of Italy)

  • Rosario Romeo

    (Bank of Italy)

Abstract

Policy evaluation based on the estimation of dynamic stochastic general equilibrium models with aggregate macroeconomic time series rests on the assumption that a representative agent can be identified, whose behavioural parameters are independent of the policy rules. Building on earlier work by Geweke, the main goal of this paper is to show that the representative agent is in general not structural, in the sense that its estimated behavioural parameters are not policyindependent. The paper identifies two different sources of nonstructurality. The latter is shown to be a fairly general feature of optimizing representative agent rational expectations models estimated on macroeconomic data.

Suggested Citation

  • Raffaele Lenzi & Stefano Nobili & Filippo Perazzoli & Rosario Romeo, 2023. "Banks’ liquidity transformation rate: determinants and impact on lending," Mercati, infrastrutture, sistemi di pagamento (Markets, Infrastructures, Payment Systems) 32, Bank of Italy, Directorate General for Markets and Payment System.
    • Handle: RePEc:bdi:wpmisp:mip_032_23
    as

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    File URL: https://www.bancaditalia.it/pubblicazioni/mercati-infrastrutture-e-sistemi-di-pagamento/approfondimenti/2023-032/N.32-MISP.pdf
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    References listed on IDEAS

    as
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    2. Fecht, Falko & Nyborg, Kjell G. & Rocholl, Jörg & Woschitz, Jiri, 2016. "Collateral, Central Bank Repos, and Systemic Arbitrage," CEPR Discussion Papers 11663, Centre for Economic Policy Research.
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    4. Altavilla, Carlo & Barbiero, Francesca & Boucinha, Miguel & Burlon, Lorenzo, 2023. "The Great Lockdown: Pandemic response policies and bank lending conditions," European Economic Review, Elsevier, vol. 156(C).
    5. Jean Barthélemy & Vincent Bignon & Benoit Nguyen, 2017. "Illiquid Collateral and Bank Lending during the European Sovereign Debt Crisis," Working papers 631, Banque de France.
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    7. Nyborg, Kjell G., 2017. "Central bank collateral frameworks," Journal of Banking & Finance, Elsevier, vol. 76(C), pages 198-214.
    8. Grandia, Roel & Hänling, Petra & Russo, Michelina Lo & Aberg, Pontus, 2019. "Availability of high-quality liquid assets and monetary policy operations: an analysis for the euro area," Occasional Paper Series 218, European Central Bank.
    9. Jean Barthélémy & Vincent Bignon & Benoît Nguyen, 2017. "Monetary policy, illiquid collateral and bank lending during the European sovereign debt crisis," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 494-495-4, pages 111-130.
    10. Schmidt, Kirsten, 2019. "Does liquidity regulation impede the liquidity profile of collateral?," Working Paper Series 2256, European Central Bank.
    11. Dong Beom Choi & João A C Santos & Tanju Yorulmazer, 2021. "A Theory of Collateral for the Lender of Last Resort [Imperfect competition in the interbank market for liquidity as a rationale for central banking]," Review of Finance, European Finance Association, vol. 25(4), pages 973-996.
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    Keywords

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    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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