Banking in General Equilibrium
This paper attempts to provide a step towards understanding the role of financial intermediaries ("banks") in aggregate economic activity. We first develop a model of the intermediary sector which is highly simplified, but rich enough to motivate several special features of bauks. Of particular importance in our model is the assumption that banks are more efficient than the public in evaluating and auditing certain information --intensive loan projects. Banks are also assumed to have private information about their investments, which motivates the heavy reliance of banks on debt rather than equity finance and their need for buffer stock capital. We embed this intermediary sector in a general equilibrium framework, which includes consumers and a non-banking investment sector. Mainly because banks have superior access to some investments, factors affecting the size or efficiency of banking will also have an impact on the aggregate economy. Among the factors affecting intermediation, we show, are the adequacy of bank capital, the riskiness of bank investments, and the costs of bank monitoring. We also show that our model is potentially useful for understanding the macroeconomic effects of phenomena such as financial crises, disintermediation, banking regulation, and certain types of monetary policy.
|Date of creation:||Jun 1985|
|Date of revision:|
|Publication status:||published as Bernanke, Ben and Mark Gertler. "Banking and Macroeconomic Equilibrium," New Approaches to Monetary Economics, ed. W. Barnett and K. Singleton, New York: Cambridge University Press, 1987. with Mark Gertler|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bernanke, Ben S, 1983.
"Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression,"
American Economic Review,
American Economic Association, vol. 73(3), pages 257-76, June.
- Ben S. Bernanke, 1983. "Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression," NBER Working Papers 1054, National Bureau of Economic Research, Inc.
- Diamond, Douglas W & Dybvig, Philip H, 1983.
"Bank Runs, Deposit Insurance, and Liquidity,"
Journal of Political Economy,
University of Chicago Press, vol. 91(3), pages 401-19, June.
- Smith, Bruce D., 1984. "Private information, deposit interest rates, and the `stability' of the banking system," Journal of Monetary Economics, Elsevier, vol. 14(3), pages 293-317, November.
- Alan S. Blinder & Joseph E. Stiglitz, 1983.
"Money, Credit Constraints, and Economic Activity,"
NBER Working Papers
1084, National Bureau of Economic Research, Inc.
- Townsend, Robert M, 1983. "Financial Structure and Economic Activity," American Economic Review, American Economic Association, vol. 73(5), pages 895-911, December.
- Fischer, Stanley, 1983. "A Framework for Monetary and Banking Analysis," Economic Journal, Royal Economic Society, vol. 93(369a), pages 1-16, Supplemen.
- Peltzman, Sam, 1970. "Capital Investment in Commercial Banking and Its Relationship to Portfolio Regulation," Journal of Political Economy, University of Chicago Press, vol. 78(1), pages 1-26, Jan.-Feb..
- King, Robert G & Plosser, Charles I, 1984. "Money, Credit, and Prices in a Real Business Cycle," American Economic Review, American Economic Association, vol. 74(3), pages 363-80, June.
- Donald D. Hester, 1981. "Innovations and Monetary Control," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 141-200.
- Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
- Fama, Eugene F., 1985. "What's different about banks?," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 29-39, January.
- Bryant, John, 1980. "A model of reserves, bank runs, and deposit insurance," Journal of Banking & Finance, Elsevier, vol. 4(4), pages 335-344, December.
- Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
- Stanley Fischer, 1982. "A Framework for Monetary and Banking Analysis," NBER Working Papers 0936, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1647. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.