The Business Cycle Implications of Banks' Maturity Transformation

35 Pages Posted: 16 Mar 2010 Last revised: 21 Mar 2011

Martin M. Andreasen

University of Aarhus; CREATES, Aarhus University

Marcelo Ferman

London School of Economics & Political Science (LSE) - Department of Economics

Pawel Zabczyk

CCBS, Bank of England

Multiple version iconThere are 2 versions of this paper

Date Written: February 23, 2011

Abstract

This paper develops a DSGE model in which banks use short term deposits to provide firms with long-term credit. The demand for long-term credit arises because firms must borrow in order to finance their capital stock which they only adjust at infrequent intervals. We show that the presence of maturity transformation in the banking section has real effects on business cycles. In particular, maturity transformation may reduce or amplify the endogenous propagation of shocks in the economy and generate a credit maturity attenuator or a credit maturity accelerator.

Keywords: Banks, DSGE model, Financial frictions, Firm heterogeneity, Maturity transformation

JEL Classification: E32, E44, E22, G21

Suggested Citation

Andreasen, Martin M. and Ferman, Marcelo and Zabczyk, Pawel, The Business Cycle Implications of Banks' Maturity Transformation (February 23, 2011). Available at SSRN: https://ssrn.com/abstract=1569365 or http://dx.doi.org/10.2139/ssrn.1569365

Martin M. Andreasen

University of Aarhus ( email )

Aarhus
Denmark

CREATES, Aarhus University ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

HOME PAGE: http://econ.au.dk/research/research-centres/creates/people/junior-fellows/martin-andreasen/

Marcelo Ferman (Contact Author)

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Pawel Zabczyk

CCBS, Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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