A Macroeconomic Model with Financially Constrained Producers and Intermediaries

101 Pages Posted: 16 Mar 2016 Last revised: 29 Apr 2020

See all articles by Vadim Elenev

Vadim Elenev

Johns Hopkins Carey Business School

Tim Landvoigt

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Stijn Van Nieuwerburgh

Columbia University Graduate School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: March 17, 2020

Abstract

How much capital should financial intermediaries hold? We propose a general equilibrium model with a financial sector that makes risky long-term loans to firms, funded by deposits from savers. Government guarantees create a role for bank capital regulation. The model captures the sharp and persistent drop in macro-economic aggregates and credit provision as well as the sharp change in credit spreads observed during the Great Recession. Policies requiring intermediaries to hold more capital reduce financial fragility, reduce the size of the financial and non-financial sectors, and lower intermediary profits. They redistribute wealth from savers to the owners of banks and non-financial firms. Pre-crisis capital requirements are close to optimal. Counter-cyclical capital requirements increase welfare.

Keywords: financial intermediation, macroprudential policy, credit spread, intermediary-based asset pricing

JEL Classification: G12, G15, F31

Suggested Citation

Elenev, Vadim and Landvoigt, Tim and Van Nieuwerburgh, Stijn, A Macroeconomic Model with Financially Constrained Producers and Intermediaries (March 17, 2020). Available at SSRN: https://ssrn.com/abstract=2748230 or http://dx.doi.org/10.2139/ssrn.2748230

Vadim Elenev

Johns Hopkins Carey Business School ( email )

100 International Drive
Baltimore, MD 20036-1984
United States

Tim Landvoigt

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Stijn Van Nieuwerburgh (Contact Author)

Columbia University Graduate School of Business ( email )

3022 Broadway
Uris Hall 809
New York, NY New York 10027
United States

HOME PAGE: http://https://www0.gsb.columbia.edu/faculty/svannieuwerburgh/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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