EconPapers    
Economics at your fingertips  
 

Banks’ leverage behaviour in a two-agent New Keynesian model

Andrea Boitani () and Chiara Punzo ()

No def063, DISCE - Working Papers del Dipartimento di Economia e Finanza from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: In a NK model with two types of rational agents, savers and capitalists, and non- maximizing banks, nancial shocks do a¤ect the macroeconomic dynamics depending on banksbehaviour as for their leverage ratio. We rst show that the level of banks leverage - which may be imposed by banks regulation - a¤ects the steady state level of output, employment and consumption, as might be expected in a non-Modigliani- Miller world. Di¤erent banks behaviour after a shock has widely di¤erent e¤ects on the macroeconomic dynamics: passive leverage results to be shock absorbing and capable of neutralizing an initial nancial shock, whilst procyclical behaviour implies higher and more persistent instability and distributive e¤ects than the constant lever- age behaviour. Finally, we show that the interaction of procyclical leverage with hysteresis in output and employment stregthens the persistence of nancial shocks.

Keywords: Leverage, Procyclicality; Two-agent model; Non-maximising banks. (search for similar items in EconPapers)
JEL-codes: E32 E44 E70 G01 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2018-01
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://dipartimenti.unicatt.it/economia-finanza-def063.pdf First version, 2018 (application/pdf)

Related works:
Working Paper: Banks’ leverage behaviour in a two-agent New Keynesian model (2018) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ctc:serie1:def063

Access Statistics for this paper

More papers in DISCE - Working Papers del Dipartimento di Economia e Finanza from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) Contact information at EDIRC.
Bibliographic data for series maintained by Simone Moriconi ().

 
Page updated 2018-07-07
Handle: RePEc:ctc:serie1:def063