Banks’ Liquidity Transformation Rate: Determinants and Impact on Lending

Abstract

Policy evaluation based on the estimation of dynamic stochastic general equilibrium models with aggregate macroeconomic time series rests on the assumption that a representative agent can be identified, whose behavioural parameters are independent of the policy rules. Building on earlier work by Geweke, the main goal of this paper is to show that the representative agent is in general not structural, in the sense that its estimated behavioural parameters are not policyindependent. The paper identifies two different sources of nonstructurality. The latter is shown to be a fairly general feature of optimizing representative agent rational expectations models estimated on macroeconomic data.

Keywords: Liquidity transformation rate, Liquidity Coverage Ratio, central bank credit operations, collateral assets, Covid-19 pandemic, loans

JEL Classification: E50, E58, G21, G28