Interbank market turmoils and the macroeconomy

Paweł Kopiec (pawel.kopiec@nbp.pl)

No 280, NBP Working Papers from Narodowy Bank Polski

Abstract: This paper studies the macroeconomic consequences of interbank market disruptions caused by higher counterparty risk. I propose a novel, dynamic model of banking sector where banks trade liquidity in the frictional OTC market à la Afonso and Lagos (2015) that features counterparty risk. The model is then embedded into an otherwise standard New Keynesian framework to analyze the macroeconomic impact of interbank market turmoils: economy suffers from a prolonged slump and deflationary pressure during such episodes. I use the model to analyze the effectiveness of two policy measures: rise in the supply of central bank reserves and interbank market guarantees in mitigating the adverse effects of those disruptions.

Keywords: Financial crisis; Interbank market; Policy intervention; OTC market (search for similar items in EconPapers)
JEL-codes: D80 E44 E58 G21 (search for similar items in EconPapers)
Pages: 42
Date: 2018
New Economics Papers: this item is included in nep-ban, nep-dge, nep-fdg, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://static.nbp.pl/publikacje/materialy-i-studia/280_en.pdf (application/pdf)

Related works:
Working Paper: Interbank Market Turmoils and the Macroeconomy (2018)
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:nbp:nbpmis:280

Access Statistics for this paper

More papers in NBP Working Papers from Narodowy Bank Polski Contact information at EDIRC.
Bibliographic data for series maintained by Jakub Growiec (mis@nbp.pl).