Banks’ Balance Sheets and the Macroeconomy in the Bank of Italy Quarterly Model

34 Pages Posted: 17 Nov 2012

Date Written: September 28, 2012

Abstract

We investigate the relationship between macroeconomic conditions and banks' balance sheets by referring to a modified version of the Bank of Italy Quarterly Model (BIQM), regularly used for forecasting and policy analysis. In particular, we examine how regulatory bank capital and private sector default probabilities affect interest rates on loans and, ultimately, economic activity. To this end, we build an enriched version of the model to include a number of banking variables. The changes introduced in the model result in an amplification of the responses of macroeconomic variables to monetary policy and world demand shocks, although, in normal times, the effect is not large.

Keywords: bank regulatory capital, loan interest rates, Italian economy

JEL Classification: E17, E27, E51, G21

Suggested Citation

Miani, Claudia and Nicoletti, Giulio and Notarpietro, Alessandro and Pisani, Massimiliano, Banks’ Balance Sheets and the Macroeconomy in the Bank of Italy Quarterly Model (September 28, 2012). Bank of Italy Occasional Paper No. 135. Available at SSRN: https://ssrn.com/abstract=2176216 or http://dx.doi.org/10.2139/ssrn.2176216

Claudia Miani

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Giulio Nicoletti

European Central Bank ( email )

Kaiserstrasse 29
Frankfurt am Main, Hessen 60311
Germany

Alessandro Notarpietro (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Massimiliano Pisani

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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