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Asymmetric information in credit markets, bank leverage cycles and macroeconomic dynamics

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  • Ansgar Rannenberg

    () (Deutsche Bundesbank, Economics Department)

Abstract

The paper adds a moral hazard problem between banks and depositors as in Gertler and Karadi (2011) to a DSGE model with a costly state verification problem between entrepreneurs and banks as in Bernanke, Gertler and Girlchrist (1999, BGG). This modification amplifies the response of the external finance premium and the overall economy to monetary policy and productivity shocks. It allows the model to match the volatility and correlation with output of the external finance premium, bank leverage, entrepreneurial leverage and other variables in US data better than a BGG-type model. A reasonably calibrated simulation of a bank balance sheet shock produces a downturn of a magnitude similar to the "Great Recession".

Suggested Citation

  • Ansgar Rannenberg, 2012. "Asymmetric information in credit markets, bank leverage cycles and macroeconomic dynamics," Working Paper Research 224, National Bank of Belgium.
  • Handle: RePEc:nbb:reswpp:201204-224
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    File URL: https://www.nbb.be/doc/oc/repec/reswpp/wp224en.pdf
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    References listed on IDEAS

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    Cited by:

    1. Beqiraj Elton & Di Bartolomeo Giovanni & Di Pietro Marco, 2016. "Financial crises, limited asset market participation, and banks balance sheet constraints," wp.comunite 00127, Department of Communication, University of Teramo.

    More about this item

    Keywords

    Financial accelerator; bank leverage; DSGE model;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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