 Financial Intermediation, Capital Accumulation, and Crisis RecoveryHans Gersbach, Jean Rochet and Martin Scheffel () Post-Print from HAL Abstract: We integrate bank and bond financing into a two-sector neoclassical growth model and identify an automatic stabilization effect due to endogenous bank leverage adjustment. We show that although bank leverage amplifies shocks, the increase of leverage due to a decline in bank equity partially offsets the post crisis decline of bank lending and accelerates economic recovery by reducing the persistence of the bank lending channel. In this case, endogenous leverage adjustment is an automatic stabilizer. Regulatory state-independent capital limits and wage rigidities impair the re-allocation of capital between sectors and weaken this automatic stabilization. A quantitative analysis of the US during the Great Recession shows that the magnitude of automatic stabilization can be significant and informs about potentially high costs of strict capital regulation or wage rigidities during banking crises. Keywords: Financial intermediation; Capital accumulation; Banking crisis; Macroeconomic shocks; Business cycles; Bust-boom cycles; Managing recoveries (search for similar items in EconPapers) Published in Review of Finance, 2022, pp.1-47. ⟨10.1093/rof/rfac046⟩ There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04074448 DOI: 10.1093/rof/rfac046 Access Statistics for this paper More papers in Post-Print from HAL |
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