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Banking in computable general equilibrium economies

Javier Díaz-Giménez (), Edward Prescott, Terry Fitzgerald () and Fernando Alvarez

No 153, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: In this paper we develop a computable general equilibrium economy that models the banking sector explicitly. Banks intermediate between households and between the household sector and the government sector. Households borrow from banks to finance their purchases of houses and they lend to banks to save for retirement. Banks pool households’ savings and they purchase interest-bearing government debt and non-interest bearing reserves. We use this structure to answer two sets of questions: one normative in nature that evaluates the welfare costs of alternative monetary and tax policies, and one positive in nature that studies the real effects of following a procyclical interest-rate policy rule.

Keywords: Banks and banking; Econometric models (search for similar items in EconPapers)
Date: 1992
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Published in Journal of Economic Dynamics and Control (Vol.16, n.3/4; July/Oct 1992, pp. 533-559)

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