The Business Cycle Implications of Banks' Maturity Transformation

44 Pages Posted: 21 Nov 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

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Date Written: October 22, 2012

Abstract

This paper develops a DSGE model where 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. Within an RBC framework, we show that maturity transformation in the banking sector dampens the consumption and investment response to a technology shock. Our model also implies that the average deposit rate is less persistent than the average long-term loan rate, which we show is in line with corporate interest rate data in the US.

Keywords: banks, DSGE model, financial frictions, long-term credit, 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 (October 22, 2012). ECB Working Paper No. 1489. Available at SSRN: https://ssrn.com/abstract=2165195

Martin M. Andreasen (Contact Author)

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

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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