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Short-run and long-run effects of banking in a new keynesian model

Author

Listed:
  • Miguel Casares

    (Departamento de Economia - UPNA - Universidad Pública de Navarra [Espagne] = Public University of Navarra)

  • Jean-Christophe Poutineau

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper introduces both endogenous capital accumulation and deposit-in-advance requirements for investment in the banking model of Goodfriend and McCallum (2007). Impulse response functions from technology and monetary shocks show some attenuation effect due to the procyclical behavior of the marginal finance cost. In addition, an adverse financial shock produces sizeable declines in output, inflation and interest rates. In the long-run analysis, we find the following effects of banking intermediation: (i) the stock of capital increases to take advantage of its collateral services, and (ii) consumption and labor fall in response to the finance cost attached to purchases of goods. Using the baseline calibrated model, we show how a 10% increase in banking efficiency would result in a permanent welfare gain equivalent to 0.3% of output.
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Suggested Citation

  • Miguel Casares & Jean-Christophe Poutineau, 2010. "Short-run and long-run effects of banking in a new keynesian model," Post-Print halshs-00496457, HAL.
    • Handle: RePEc:hal:journl:halshs-00496457
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    References listed on IDEAS

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    5. Fiorella De Fiore & Oreste Tristani, 2013. "Optimal Monetary Policy in a Model of the Credit Channel," Economic Journal, Royal Economic Society, vol. 123(571), pages 906-931, September.
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    9. Wang, Peng-fei & Wen, Yi, 2006. "Another look at sticky prices and output persistence," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2533-2552, December.
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    Cited by:

    1. Poutineau, Jean-Christophe & Vermandel, Gauthier, 2015. "Cross-border banking flows spillovers in the Eurozone: Evidence from an estimated DSGE model," Journal of Economic Dynamics and Control, Elsevier, vol. 51(C), pages 378-403.
    2. Miguel Casares & Jean-Christophe Poutineau, 2013. "Firm Entry under Financial Frictions," Review of Development Economics, Wiley Blackwell, vol. 17(2), pages 301-318, May.
    3. Gerke, Rafael & Hammermann, Felix & Lewis, Vivien, 2012. "Robust monetary policy in a model with financial distress," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 318-325.

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    More about this item

    Keywords

    banking; financial attenuator; financial shock; welfare cost banking;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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