The Role of Bank Capital and The Transmission Mechanism of Monetary Policy

Pojanart Sunirand

FMG Discussion Papers from Financial Markets Group

Abstract: This paper is a theoretical study of the transmission mechanism of monetary policy in the presence of an endogenous role of bank capital. The basic framework is a standard Dynamic New Keynesian model with price stickiness modified so as firms as well as banks face endogenous financial frictions in obtaining external funds from their respective debtors. This implies that an external financial premium exists, thereby motivating the endogenous role of entrepreneurial net worth and bank capital in the model. In the terminology of Van den Heuvel (2001), the model exhibits the unconventional ‘bank capital ’ channel of monetary policy. The simulation result highlights a financial accelerator e .ect in that endogenous evolution of bank capital, together with that of entrepreneurial net worth, operate to amplify and propagate the e .ect of a monetary shock in the macroeconomy.

Date: 2002-12
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/DP433.pdf (application/pdf)

Related works:
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:fmg:fmgdps:dp433

Access Statistics for this paper

More papers in FMG Discussion Papers from Financial Markets Group
Bibliographic data for series maintained by The FMG Administration ().