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Implications on Households of Bank's Asset Substitution

Santiago Caicedo and David Perez-Reyna ()

Temas de Estabilidad Financiera from Banco de la Republica de Colombia

Abstract: In this paper we develop a DSGE model to analyze the welfare implications over households that bank's asset recomposition might have. We model a representative bank that potentially faces liquidity dificulties due to a mismatch between credits issued to firms and deposits supplied by households. This bank has a portfolio consisting of loans and bonds. The results show that positive liquidity shocks, driven by changes in the household preferences, affect the bank's asset allocation decisions and are beneficial to households. Similarly, when the bond's return rate increases, there is a substitution effect that lowers the loan to bond ratio, but despite this, the bank's intermediation activity increases inducing a positive effect over the household's welfare.

Keywords: bank asset recomposition; DSGE model with banking sector; loans deposit mismatch; liquidity shock (search for similar items in EconPapers)
JEL-codes: D58 E32 E44 (search for similar items in EconPapers)
Date: 2010-09
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Persistent link: https://EconPapers.repec.org/RePEc:bdr:temest:053

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