Short-Run and Long-Run Effects of Banking in a New Keynesian Model

Miguel Casares and Jean-Christophe Poutineau ()

The B.E. Journal of Macroeconomics, 2011, vol. 11, issue 1, 41

Abstract: This paper introduces both endogenous capital accumulation and deposit-in-advance requirements for investment in the banking model of Goodfriend and McCallum (2007). Impulse response functions from technology and monetary shocks show some attenuation effect due to the procyclical behavior of the marginal finance cost. In addition, an adverse financial shock produces sizeable declines in output, inflation and interest rates. In the long-run analysis, we finnd the following effects of banking intermediation: (i) the stock of capital increases to take advantage of its collateral services, and (ii) consumption and labor fall in response to the finance cost attached to purchases of goods. Using the baseline calibrated model, we show how a 10 percent increase in banking efficiency would result in a permanent welfare gain equivalent to 0.3 percent of output.

Keywords: attenuation effect; financial shocks; welfare cost of banking (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Short-run and long-run effects of banking in a new keynesian model (2011)
Working Paper: Short-run and long-run effects of banking in a new keynesian model (2010)
Working Paper: Short-run and long-run effects of banking in a new keynesian model (2010)
Working Paper: Short-run and Long-run Effects of Banking in a New Keynesian Model (2010)
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DOI: 10.2202/1935-1690.2156

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