Capital-constrained loan creation, stock markets and monetary policy in a behavioral new Keynesian model

Naira Kotb and Christian Proaño

No 158, BERG Working Paper Series from Bamberg University, Bamberg Economic Research Group

Abstract: In this paper we incorporate a stock market and a banking sector in a behavioral macro-finance model with heterogenous and boundedly rational expectations. Households' savings are diversified among bank deposits and stock purchases, and banks' lending to firms is subject to capital-related costs. We find that households' participation in the stock market, coupled to the existence of a capital-constrained banking sector affects the transmission of monetary policy to the economy significantly, and that households' deposits act as a critical spill-over channel between the real and the financial sectors. In other words, we relate the regulatory stance in the banking sector with the degree of pass-through of monetary policy shocks. Further, we investigate the performance of a leaning-against-the-wind (LATW) monetary policy which targets asset prices concerning macroeconomic and financial stability.

Keywords: Behavioral Macroeconomics; Banking; Stock Markets; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E44 E52 G21 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-fdg, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bamber:158

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