The Business Cycle Implications of Banks’ Maturity Transformation

43 Pages Posted: 23 Mar 2012  

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

Date Written: March 19, 2012

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 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

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

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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