Financial Intermediaries, Credit Shocks and Business Cycles

Yasin Mimir

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

Abstract: I document key business cycle facts of aggregate financial flows in the U.S. banking sector : (i) Bank credit, deposits and loan spread are less volatile than output, while net worth and leverage ratio are more volatile, (ii) bank credit and net worth are procyclical, while deposits, leverage ratio and loan spread are countercyclical, and (iii) financial variables lead the output fluctuations by one to three quarters. I then present an equilibrium real business cycle model with a financial sector, that is capable of matching these newly documented stylized facts. An agency problem between banks and their depositors induces endogenous capital constraints for banks in obtaining funds from households. Empirically-disciplined shocks to bank net worth alter the ability of banks to borrow and to extend credit to firms. I find that these financial shocks are important not only for explaining the dynamics of financial flows but also for the dynamics of standard macroeconomic aggregates. They play a major role in driving real fluctuations due to their impact on the tightness of bank capital constraint and the credit spread. The tightness measure of credit conditions in the model tracks the index of tightening credit standards constructed by the Federal Reserve Board quite well.

Keywords: Banks; Financial Fluctuations; Credit Frictions; Bank Equity; Financial Shocks (search for similar items in EconPapers)
JEL-codes: E10 E20 E32 E44 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-ban, nep-dge and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN ... g+Paperss/2013/13-13 (application/pdf)

Related works:
Journal Article: Financial Intermediaries, Credit Shocks and Business Cycles (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:1313

Access Statistics for this paper

More papers in Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey Contact information at EDIRC.
Bibliographic data for series maintained by Sermet Pekin () and Ilker Cakar () and ().