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A Quantitative Model of Banking Industry Dynamics

P. Dean Corbae () and Pablo D'Erasmo ()

No 268, 2010 Meeting Papers from Society for Economic Dynamics

Abstract: business cycles, and borrower default frequencies. The model is parameterized to match a set of key aggregate and cross-sectional statistics for the U.S. banking industry. As in the data, the model generates countercyclical interest rates on loans, bank failure rates, borrower default frequencies, and charge-off rates as well as a procyclical loan supply and entry rates. The model can be used to study bank competition and the benefits/costs of policies to subsidize/mitigate bank entry/exit.

Date: 2010
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