Financial Cycles with Heterogeneous Intermediaries

Nuno Coimbra and Helene Rey

No 23245, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a dynamic macroeconomic model with heterogeneous financial intermediaries and endogenous entry. Time-varying endogenous macroeconomic risk arises from the risk-shifting behaviour of the cross-section of financial intermediaries. When interest rates are high, a decrease in interest rates stimulates investment and decreases aggregate risk. In contrast, when they are low, further stimulus can increase financial instability while inducing a fall in the risk premium. In this case, there is a trade-off between stimulating the economy and financial stability. This provides a model of the risk-taking channel of monetary policy.

JEL-codes: E32 E44 G21 (search for similar items in EconPapers)
Date: 2017-03
New Economics Papers: this item is included in nep-dge, nep-fdg and nep-mac
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Citations: View citations in EconPapers (89)

Published as Nuno Coimbra & Hélène Rey, 2024. "Financial Cycles with Heterogeneous Intermediaries," Review of Economic Studies, vol 91(2), pages 817-857.

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Journal Article: Financial Cycles with Heterogeneous Intermediaries (2024)
Working Paper: Financial Cycles with Heterogeneous Intermediaries (2017)
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