The Business Cycle Implications of Banks’ Maturity Transformation
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
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