The Macroeconomic Impact of Money Market Freezes

Marie Hoerova, Harald Uhlig () and Fiorella De Fiore

No 1092, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: We build a general equilibrium model featuring unsecured and secured interbank markets, and collateralized central bank funding. The model accounts for some key facts about the European money markets since 2008: i) the decline in the ratio of interbank liabilities in total bank assets since the onset of the global financial crisis; ii) the reduced ability of banks to access the unsecured market during the sovereign crisis, and their shift to secured market funding; iii) the increased reliance on central bank funding, particularly for banks in countries with a vulnerable sovereign. Using the calibrated model, we find that a decline in the share of unsecured to secured interbank market transactions, as observed during the crisis, generates a sizeable macroeconomic impact.

Date: 2017
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-eec, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:1092

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