Asymmetric information in credit markets, bank leverage cycles and macroeconomic dynamics

Ansgar Rannenberg

No 224, Working Paper Research from National Bank of Belgium

Abstract: The paper adds a moral hazard problem between banks and depositors as in Gertler and Karadi (2011) to a DSGE model with a costly state verification problem between entrepreneurs and banks as in Bernanke, Gertler and Girlchrist (1999, BGG). This modification amplifies the response of the external finance premium and the overall economy to monetary policy and productivity shocks. It allows the model to match the volatility and correlation with output of the external finance premium, bank leverage, entrepreneurial leverage and other variables in US data better than a BGG-type model. A reasonably calibrated simulation of a bank balance sheet shock produces a downturn of a magnitude similar to the "Great Recession".

Keywords: Financial accelerator; bank leverage; DSGE model (search for similar items in EconPapers)
JEL-codes: E44 G21 (search for similar items in EconPapers)
Pages: 104 pages
Date: 2012-04
New Economics Papers: this item is included in nep-ban, nep-cta, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Working Paper: Asymmetric information in credit markets, bank leverage cycles and macroeconomic dynamics (2012)
Working Paper: Asymmetric Information in Credit Markets, Bank Leverage Cycles and Macroeconomic Dynamics (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:201204-224

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