Banks and the Marginal Propensity to Lend in General Equilibrium

Angel Fernández Rojas
Additional contact information
Angel Fernández Rojas: Banco Central de Reserva del Perú.

No 2025-023, Working Papers from Banco Central de Reserva del Perú

Abstract: This paper examines the role of the marginal propensity to lend (MPL) out of deposit shocks in the transmission of monetary policy within a general equilibrium framework. To this end, I extend a standard New Keynesian DSGE model by incorporating banks and imperfect substitution between deposits and wholesale funding. Using U.S. bank-level data for calibration, I find that increasing financial frictions—raising the aggregate MPL by 66%—amplifies the responses of bank lending and investment to monetary shocks by 11% and 16%, respectively. Moreover, when the sensitivity of the marginal cost of funds also rises, loan pass-through increases by 20%, further amplifying lending and investment responses by 31% and 54%, respectively. Finally, higher MPLs amplify the production response to monetary shocks only in the medium run, through their impact on investment.

Date: 2025-12
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.bcrp.gob.pe/docs/Publicaciones/Documen ... trabajo-023-2025.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:rbp:wpaper:2025-023

Access Statistics for this paper

More papers in Working Papers from Banco Central de Reserva del Perú Contact information at EDIRC.
Bibliographic data for series maintained by Research Unit ().