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A Quantitative Model of Banking Industry Dynamics

Author

Listed:
  • Dean Corbae

    (University of Texas)

  • Pablo D'Erasmo

    (University of Maryland)

Abstract

business cycles, and borrower default frequencies. The model is parameterized to match a set of key aggregate and cross-sectional statistics for the U.S. banking industry. As in the data, the model generates countercyclical interest rates on loans, bank failure rates, borrower default frequencies, and charge-off rates as well as a procyclical loan supply and entry rates. The model can be used to study bank competition and the benefits/costs of policies to subsidize/mitigate bank entry/exit.

Suggested Citation

  • Dean Corbae & Pablo D'Erasmo, 2010. "A Quantitative Model of Banking Industry Dynamics," 2010 Meeting Papers 268, Society for Economic Dynamics.
  • Handle: RePEc:red:sed010:268
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    File URL: https://economicdynamics.org/meetpapers/2010/paper_268.pdf
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    References listed on IDEAS

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    1. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
    2. Richard Ericson & Ariel Pakes, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 53-82.
    3. David Martinez-Miera & Rafael Repullo, 2010. "Does Competition Reduce the Risk of Bank Failure?," Review of Financial Studies, Society for Financial Studies, vol. 23(10), pages 3638-3664, October.
    4. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
    5. Diaz-Gimenez, Javier & Prescott, Edward C. & Fitzgerald, Terry & Alvarez, Fernando, 1992. "Banking in computable general equilibrium economies," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 533-559.
    6. Rajnish Mehra, 2003. "The Equity Premium: Why is it a Puzzle?," NBER Working Papers 9512, National Bureau of Economic Research, Inc.
    7. Williamson, Stephen D, 1987. "Financial Intermediation, Business Failures, and Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1196-1216, December.
    8. Fernando Alvarez & Terry J. Fitzgerald, 1992. "Banking in computable general equilibrium economies: technical appendices I and II," Staff Report 155, Federal Reserve Bank of Minneapolis.
    9. Hubert P. Janicki & Edward Simpson Prescott, 2006. "Changes in the size distribution of U.S. banks: 1960-2005," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 291-316.
    10. John H. Boyd & Gianni De Nicol√£, 2005. "The Theory of Bank Risk Taking and Competition Revisited," Journal of Finance, American Finance Association, vol. 60(3), pages 1329-1343, June.
    11. Huberto M. Ennis, 2001. "On the size distribution of banks," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 1-25.
    12. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
    13. Gautam Gowrisankaran, 1999. "A Dynamic Model of Endogenous Horizonal Mergers," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 56-83, Spring.
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    Cited by:

    1. Alexandru GRIBINCEA & Georgeta GHERGHINA, 2013. "Necessity To Diminish The Giant Banks," ECONOMY AND SOCIOLOGY: Theoretical and Scientifical Journal, Socionet;Complexul Editorial "INCE", issue 3, pages 71-75.
    2. Kerl, Cornelia & Niepmann, Friederike, 2014. "What determines the composition of international bank flows?," Staff Reports 681, Federal Reserve Bank of New York.

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