Bank leverage cycles and the external finance premium

Ansgar Rannenberg

No 55/2013, Discussion Papers from Deutsche Bundesbank

Abstract: By combining the approaches of Gertler and Karadi (2011) and Bernanke et al. (1999), I develop a DSGE model with leverage constraints both in the banking and in the non-financial firm sector. I calibrate this full model to US data. In a world with only a monetary policy and a productivity shock, the full model matches the relative volatility of the external finance premium, while a BGG model generates too low volatility. The full model also matches the procyclicality of bank leverage, unlike the GK model. For a reasonably calibrated combination shocks to the net worth of banks and non-financial firms, the model reproduces a substantial share of the contraction (increase) of investment (the external finance premium) observed during the Great Recession.

Keywords: leverage cycle; bank capital; financial accelerator; output effects of financial shocks (search for similar items in EconPapers)
JEL-codes: E50 E52 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (21)

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Related works:
Journal Article: Bank Leverage Cycles and the External Finance Premium (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:552013

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