The Geography of Bank Deposits and the Origins of Aggregate Fluctuations
83 Pages Posted: 27 Aug 2021 Last revised: 19 Apr 2023
Date Written: July 9, 2021
What are the aggregate effects of deposit shocks? Using the granular-instrumental-variable methodology, we identify the deposit elasticity of economic growth as 0.87 and the money multiplier as 1.18. We construct deposit shocks by combining a new fact regarding the within-bank geographic concentration of deposits -- 30% of deposits are concentrated in a single county -- with local natural disasters. Large natural disasters in deposit-concentrated areas negatively affect bank deposits and amplify through bank internal capital markets. These shocks can explain 3.30% of the variation in economic growth. Lender and borrower-side frictions are critical for the aggregation of local shocks.
JEL Classification: G21, E44, O47, R11, R12
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