Bank Balance Sheets, Deleveraging and the Transmission Mechanism

Cesaire Meh

Bank of Canada Review, 2011, vol. 2011, issue Summer, 23-34

Abstract: The author investigates the influence of bank capital on economic activity, using a macroeconomic model that incorporates an explicit role for financial intermediation. The analysis focuses on the role of a “bank-capital channel” in propagating and amplifying monetary policy actions and other shocks. The question of whether weaker bank balance sheets make the economy more vulnerable to adverse shocks is examined, together with the impact of initiatives, such as countercyclical capital buffers, on the transmission of monetary policy and other shocks to the real economy.

Date: 2011
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