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Financial crises, limited asset market participation, and banks balance sheet constraints

Elton Beqiraj Elton, Giovanni Di Bartolomeo () and Di Pietro Marco

wp.comunite from Department of Communication, University of Teramo

Abstract: Our paper focuses on the effects of financial imperfections. It considers the interaction between two kinds of imperfections in an otherwise standard medium--scale New Keynesian economy characterized by nominal price and wage frictions, habits and capital adjustment costs. The imperfection investigated are the long--run limited--asset market participation assumption and the banks' balance sheet constraints due to an agency problem between financial intermediaries and depositors. The key question of the chapter is if the simultaneous presence of both amplifies or mitigates the negative effects of a financial crises, i.e., if these are substitutes or complements for the downturn after the crisis.

New Economics Papers: this item is included in nep-dge and nep-fdg
Date: 2016-11
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