43 Pages Posted: 23 Mar 2012
Date Written: March 19, 2012
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 borrow in order to finance their capital stock which they only adjust at infrequent intervals. We show within a real business cycle framework that maturity transformation in the banking sector in general attenuates the output response to a technological shock. Implications of long-term nominal contracts are also examined in a New Keynesian version of the model, where we find that maturity transformation reduces the real effects of a monetary policy shock.
Keywords: Banks, DSGE model, financial frictions, firm heterogeneity, maturity transformation
JEL Classification: E32, E44, E22, G21
Suggested Citation: Suggested Citation
Andreasen, Martin M. and Ferman, Marcelo and Zabczyk, Pawel, The Business Cycle Implications of Banks’ Maturity Transformation (March 19, 2012). Bank of England Working Paper No. 446. Available at SSRN: https://ssrn.com/abstract=2027842 or http://dx.doi.org/10.2139/ssrn.2027842