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A descriptive model of banking and aggregate demand

Jochen Mierau () and Mark Mink

DNB Working Papers from Netherlands Central Bank, Research Department

Abstract: We integrate a banking sector into an accessible macroeconomic framework, which then provides new explanations for developments around the Global Financial Crisis. The analysis shows that growth of banking sector money supply may explain the secular decline in long-term interest rates before the crisis. A new bank funding channel of monetary transmission clarifies why even large increases in central bank policy rates could not reverse this trend. Our analysis challenges the view that monetary policy becomes ineffective in a liquidity trap, and shows that bank recapitalizations are more effective than fiscal expansions in restoring aggregate demand after a banking crisis.

Keywords: banking; aggregate demand; 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)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2016-02
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Related works:
Journal Article: A Descriptive Model of Banking and Aggregate Demand (2018) Downloads
Working Paper: A descriptive model of banking an aggregate demand (2016) Downloads
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