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A Macroeconomic Model with Financially Constrained Producers and Intermediaries

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  • Elenev, Vadim
  • Landvoigt, Tim
  • van Nieuwerburgh, Stijn

Abstract

We propose a model that can simultaneously capture the sharp and persistent drop in macro-economic aggregates and the sharp change in credit spreads observed in the U.S. during the Great Recession. The model features financial intermediaries that make long-term defaultable loans to producers and raise short-term debt from savers. Intermediaries are subject to a regulatory equity capital constraint. Policies limiting intermediary leverage redistribute wealth from savers to equity owners of producers and intermediaries. The benefits of lower intermediary leverage for financial stability are offset by the costs from lower output. Current capital requirements are close to optimal.

Suggested Citation

  • Elenev, Vadim & Landvoigt, Tim & van Nieuwerburgh, Stijn, 2017. "A Macroeconomic Model with Financially Constrained Producers and Intermediaries," CEPR Discussion Papers 12282, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12282
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    Cited by:

    1. repec:bis:bisbps:95 is not listed on IDEAS
    2. Mendicino, Caterina & Nikolov, Kalin & Suarez, Javier & Supera, Dominik, 2018. "Bank Capital in the Short and in the Long Run," CEPR Discussion Papers 13152, C.E.P.R. Discussion Papers.
    3. repec:oup:restud:v:85:y:2018:i:2:p:810-854. is not listed on IDEAS
    4. Villacorta, Alonso, 2018. "Business cycles and the balance sheets of the financial and non-financial sectors," ESRB Working Paper Series 68, European Systemic Risk Board.
    5. repec:eee:jhouse:v:41:y:2018:i:c:p:153-167 is not listed on IDEAS
    6. repec:eee:dyncon:v:105:y:2019:i:c:p:265-282 is not listed on IDEAS
    7. William Diamond & Tim Landvoigt, 2019. "Credit Cycles with Market Based Household Leverage," 2019 Meeting Papers 162, Society for Economic Dynamics.
    8. Faria-e-Castro, Miguel, 2019. "A Quantitative Analysis of Countercyclical Capital Buffers," Working Papers 2019-8, Federal Reserve Bank of St. Louis, revised 01 Jun 2019.
    9. Azzimonti, Marina & Yared, Pierre, 2019. "The optimal public and private provision of safe assets," Journal of Monetary Economics, Elsevier, vol. 102(C), pages 126-144.
    10. Pham, Ngoc-Sang, 2018. "Credit limits and heterogeneity in general equilibrium models with a finite number of agents," MPRA Paper 88736, University Library of Munich, Germany.
    11. Lubello, Federico & Petrella, Ivan & Santoro, Emiliano, 2019. "Bank assets, liquidity and credit cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 105(C), pages 265-282.
    12. Tim Landvoigt & Stijn Van Nieuwerburgh & Daniel Greenwald, 2017. "Financial Fragility with SAM?," 2017 Meeting Papers 1525, Society for Economic Dynamics.
    13. Kelly, Robert & McCann, Fergal & O’Toole, Conor, 2018. "Credit conditions, macroprudential policy and house prices," Journal of Housing Economics, Elsevier, vol. 41(C), pages 153-167.
    14. Ely, Regis Augusto & Tabak, Benjamin Miranda & Teixeira, Anderson Mutter, 2019. "Heterogeneous effects of the implementation of macroprudential policies on bank risk," MPRA Paper 94546, University Library of Munich, Germany.
    15. Francesco Bianchi & Cosmin L. Ilut & Martin Schneider, 2018. "Uncertainty Shocks, Asset Supply and Pricing over the Business Cycle," Review of Economic Studies, Oxford University Press, vol. 85(2), pages 810-854.
    16. Hamed Ghiaie, 2018. "Shadow Bank run, Housing and Credit Market: The Story of a Recession," THEMA Working Papers 2018-01, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    17. Dan Cao & Guangyu Nie & Wenlan Luo, 2019. "Fisherian Debt-Deflation Zero Lower Bound," 2019 Meeting Papers 961, Society for Economic Dynamics.
    18. Federico Lubello & Ivan Petrella & Emiliano Santoro, 2018. "Chained financial frictions and credit cycles," BCL working papers 116, Central Bank of Luxembourg.
    19. Paul, Pascal, 2017. "A Macroeconomic Model with Occasional Financial Crises," Working Paper Series 2017-22, Federal Reserve Bank of San Francisco.

    More about this item

    Keywords

    credit spread; Financial Intermediation; intermediary-based asset pricing; macroprudential policy;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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