The Business Cycle Implications of Banks' Maturity Transformation
35 Pages Posted: 16 Mar 2010 Last revised: 21 Mar 2011
Date Written: February 23, 2011
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: Suggested Citation