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The business cycle implications of banks' maturity transformation

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  • Zabczyk, Pawel
  • Andreasen, Martin M.
  • Ferman, Marcelo

Abstract

This paper develops a DSGE model where 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. Within an RBC framework, we show that maturity transformation in the banking sector dampens the consumption and investment response to a technology shock. Our model also implies that the average deposit rate is less persistent than the average long-term loan rate, which we show is in line with corporate interest rate data in the US. JEL Classification: E32, E44, E22, G21

Suggested Citation

  • Zabczyk, Pawel & Andreasen, Martin M. & Ferman, Marcelo, 2012. "The business cycle implications of banks' maturity transformation," Working Paper Series 1489, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20121489
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Matteo Iacoviello, 2015. "Financial Business Cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(1), pages 140-164, January.
    2. Smith, Anthony Jr. & Wang, Cheng, 2006. "Dynamic credit relationships in general equilibrium," Journal of Monetary Economics, Elsevier, vol. 53(4), pages 847-877, May.
    3. Martin Andreasen & Marcelo Ferman & Pawel Zabczyk, 2013. "The Business Cycle Implications of Banks' Maturity Transformation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(4), pages 581-600, October.
    4. Holmberg, Ulf, 2012. "The Credit Market and the Determinants of Credit Crunches: An Agent Based Modeling Approach," Umeå Economic Studies 836, Umeå University, Department of Economics.
    5. repec:eee:jmacro:v:54:y:2017:i:pb:p:260-284 is not listed on IDEAS
    6. Kühl, Michael, 2014. "The financial accelerator and market-based debt instruments: A role for maturities?," Discussion Papers 08/2014, Deutsche Bundesbank.
    7. Danilo Liberati, 2014. "An estimated DSGE model with search and matching frictions in the credit market," Temi di discussione (Economic working papers) 986, Bank of Italy, Economic Research and International Relations Area.
    8. Elton Beqiraj & Giovanni Di Bartolomeo & Marco Di Pietro & Carolina Serpieri, 2017. "Resilience, crisis contagion, and vulnerability in Central Europe and the Baltics," JRC Working Papers JRC109632, Joint Research Centre (Seville site).
    9. Punnoose Jacob & Anella Munro, 2016. "A macroprudential stable funding requirement and monetary policy in a small open economy," CAMA Working Papers 2016-23, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    10. Kühl, Michael, 2017. "Bank capital, the state contingency of banks’ assets and its role for the transmission of shocks," Journal of Macroeconomics, Elsevier, vol. 54(PB), pages 260-284.
    11. Quint, Dominic & Rabanal, Pau, 2017. "Should unconventional monetary policies become conventional?," Discussion Papers 28/2017, Deutsche Bundesbank.
    12. Piergiorgio Alessandri & Benjamin D. Nelson, 2015. "Simple Banking: Profitability and the Yield Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(1), pages 143-175, February.
    13. Moises S. Andrade & Tiago Berriel, 2016. "Is There an Output Free Lunch for Fiscal Inationary Policies?," Textos para discussão 650, Department of Economics PUC-Rio (Brazil).
    14. Beqiraj, Elton & Di Bartolomeo, Giovanni & Di Pietro, Marco & Serpieri, Carolina, 2018. "Comparing Central Europe and the Baltic macro-economies: A Bayesian approach," EconStor Preprints 175242, ZBW - German National Library of Economics.

    More about this item

    Keywords

    banks; DSGE model; financial frictions; long-term credit; maturity transformation;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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