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A Macroeconomic Model with Financially Constrained Producers and Intermediaries

Vadim Elenev, Tim Landvoigt and Stijn Van Nieuwerburgh

No 12282, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We propose a model that can simultaneously capture the sharp and persistent drop in macro-economic aggregates and the sharp change in credit spreads observed in the U.S. during the Great Recession. The model features financial intermediaries that make long-term defaultable loans to producers and raise short-term debt from savers. Intermediaries are subject to a regulatory equity capital constraint. Policies limiting intermediary leverage redistribute wealth from savers to equity owners of producers and intermediaries. The benefits of lower intermediary leverage for financial stability are offset by the costs from lower output. Current capital requirements are close to optimal.

Keywords: credit spread; Financial Intermediation; intermediary-based asset pricing; macroprudential policy (search for similar items in EconPapers)
JEL-codes: F31 G12 G15 (search for similar items in EconPapers)
Date: 2017-09
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Related works:
Working Paper: A Macroeconomic Model with Financially Constrained Producers and Intermediaries (2018) Downloads
Working Paper: A Macroeconomic Model with Financially Constrained Producers and Intermediaries (2016) Downloads
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