A Macroeconomic Model with Financially Constrained Producers and Intermediaries

89 Pages Posted: 25 Jun 2018 Last revised: 24 Aug 2024

See all articles by Vadim Elenev

Vadim Elenev

Johns Hopkins University

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); ABFER

Multiple version iconThere are 3 versions of this paper

Date Written: June 2018

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 locally increase macro-economic volatility. They redistribute wealth from savers to the owners of banks and non-financial firms. Current capital requirements are close to optimal.

Suggested Citation

Elenev, Vadim and Landvoigt, Tim and Van Nieuwerburgh, Stijn, A Macroeconomic Model with Financially Constrained Producers and Intermediaries (June 2018). NBER Working Paper No. w24757, Available at SSRN: https://ssrn.com/abstract=3202062

Vadim Elenev (Contact Author)

Johns Hopkins University ( email )

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Tim Landvoigt

University of Pennsylvania - The Wharton School ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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Stijn Van Nieuwerburgh

Columbia University Graduate School of Business ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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