Asymmetric information in credit markets, bank leverage cycles and macroeconomic dynamics

Ansgar Rannenberg

No 1487, Working Paper Series from European Central Bank

Abstract: I add a moral hazard problem between banks and depositors as in Gertler and Karadi (2009) to a DSGE model with a costly state verification problem between entrepreneurs and banks as in Bernanke et al. (1999) (BGG). This modification amplifies the response of the external finance premium and the overall economy to monetary policy and productivity shocks. It allows my model to match the volatility and correlation with output of the external finance premium, bank leverage, entrepreneurial leverage and other variables in US data better than a BGG-type model. A reasonably calibrated combination of balance sheet shocks produces a downturn of a magnitude similar to the "Great Recession". JEL Classification: E44, E43, E32

Keywords: bank capital; financial accelerator; Leverage cycle; output effects of financial shocks (search for similar items in EconPapers)
Date: 2012-10
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cta, nep-dge and nep-mac
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Citations: View citations in EconPapers (14)

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Working Paper: Asymmetric information in credit markets, bank leverage cycles and macroeconomic dynamics (2012)
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