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The business cycle implications of banks’ maturity transformation

Listed author(s):
  • Andreasen, Martin

    ()

    (Bank of England)

  • Ferman, Marcelo

    ()

    (LSE)

  • Zabczyk, Pawel

    ()

    (Bank of England)

This paper develops a DSGE model in which banks use short-term deposits to provide firms with long-term credit. The demand for long-term credit arises because firms borrow in order to finance their capital stock which they only adjust at infrequent intervals. We show within a real business cycle framework that maturity transformation in the banking sector in general attenuates the output response to a technological shock. Implications of long-term nominal contracts are also examined in a New Keynesian version of the model, where we find that maturity transformation reduces the real effects of a monetary policy shock.

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Paper provided by Bank of England in its series Bank of England working papers with number 446.

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Length: 43 pages
Date of creation: 19 Mar 2012
Handle: RePEc:boe:boeewp:0446
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