Loan supply and bank capital: A micro-macro linkage

Thomas Kick, Swetlana Kreiser and Christian Merkl

No 04/2018, FAU Discussion Papers in Economics from Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics

Abstract: In the presence of financial frictions, banks' capital position may constrain their ability to provide loans. The banking sector may thus have important feedback effects on the macroeconomy. To shed new light on this issue, we combine two approaches. First, we use microeconomic balance sheet data from Germany and estimate banks' loan supply response to capital changes. Second, we modify the model of Gertler and Karadi (2011) such that it can be calibrated to the estimated partial equilibrium elasticity of bank loan supply with respect to bank capital. Although the targeted elasticity is remarkably different from the one in the baseline model, banks continue to be an important originator and amplifier of macroeconomic shocks.Thus, combining microeconometric results with macroeconomic modeling provides evidence on the effects of the banking sector on the macroeconomy.

Keywords: DSGE; bank capital; loan supply; financial frictions (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-ban, nep-dge and nep-eur
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https://www.econstor.eu/bitstream/10419/176699/1/1016031564.pdf (application/pdf)

Related works:
Journal Article: Loan supply and bank capital: A micro-macro linkage (2020)
Working Paper: Loan supply and bank capital: A micro-macro linkage (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwqwdp:042018

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