Bank Leverage Cycles
Galo Nuño Barrau () and
Carlos Thomas ()
American Economic Journal: Macroeconomics, 2017, vol. 9, issue 2, 32-72
We propose a general equilibrium framework with financial intermediaries subject to endogenous leverage constraints, and assess its ability to explain the observed fluctuations in intermediary leverage and real economic activity. In the model, intermediaries ("banks") borrow in the form of short-term risky debt. The presence of risk-shifting moral hazard gives rise to a leverage constraint, and creates a link between the volatility in bank asset returns and leverage. Unlike TFP or capital quality shocks, volatility shocks produce empirically plausible fluctuations in bank leverage. The model replicates well the fall in leverage, assets, and GDP during the 2007-2009 financial crisis.
JEL-codes: D82 E44 G01 G21 G32 (search for similar items in EconPapers)
Note: DOI: 10.1257/mac.20140084
References: Add references at CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed
Downloads: (external link)
https://www.aeaweb.org/articles/attachments?retrie ... yLFIywGMidb5YUfiMo4F (application/zip)
https://www.aeaweb.org/articles/attachments?retrie ... MWZULxfkMFJX29xOIZUj (application/pdf)
https://www.aeaweb.org/articles/attachments?retrie ... pabo9iuzV6fUNSbdrc-b (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.
Working Paper: Bank leverage cycles (2013)
Working Paper: Bank Leverage Cyles (2013)
Working Paper: Bank leverage cycles (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:aea:aejmac:v:9:y:2017:i:2:p:32-72
Ordering information: This journal article can be ordered from
Access Statistics for this article
American Economic Journal: Macroeconomics is currently edited by Simon Gilchrist
More articles in American Economic Journal: Macroeconomics from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().