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A Descriptive Model of Banking and Aggregate Demand

Jochen Mierau () and Mark Mink

De Economist, 2018, vol. 166, issue 2, 207-237

Abstract: Abstract We integrate a banking sector into an accessible macroeconomic framework, which then provides new insights on developments around the Global Financial Crisis. The analysis shows that growth of banking sector money supply may help explain the secular decline in long-term interest rates before the crisis. A new bank funding channel of monetary transmission clarifies why increases in central bank policy rates could not reverse this trend. Our analysis highlights the distinction between the zero lower bound and the liquidity trap, and shows that bank recapitalizations can be more effective than fiscal expansions in restoring aggregate demand after a banking crisis.

Keywords: Aggregate demand; Banking; Monetary transmission; Global financial crisis (search for similar items in EconPapers)
JEL-codes: E32 E50 E63 G01 G21 G28 (search for similar items in EconPapers)
Date: 2018
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Working Paper: A descriptive model of banking and aggregate demand (2016) Downloads
Working Paper: A descriptive model of banking an aggregate demand (2016) Downloads
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