Asymmetric Information in Credit Markets, Bank Leverage Cycles and Macroeconomic Dynamics

Ansgar Rannenberg

VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century from Verein für Socialpolitik / German Economic Association

Abstract: I add a moral hazard problem between banks and depositors as in Gertler and Karadi (2009) to a DSGE model with a costly state verification problem between entrepreneurs and banks as in Bernanke et al. (1999) (BGG). This modification amplifies the response of the external finance premium and the overall economy to monetary policy and productivity shocks. It allows my model to match the volatility and correlation with output of the external finance premium, bank leverage, entrepreneurial leverage and other variables in US data better than a BGG-type model. A reasonably calibrated combination of balance sheet shocks produces a downturn of a magnitude similar to the "Great Recession".

JEL-codes: E20 E30 E44 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-ban, nep-cta, nep-dge and nep-mac
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Citations: View citations in EconPapers (14)

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Related works:
Working Paper: Asymmetric information in credit markets, bank leverage cycles and macroeconomic dynamics (2012)
Working Paper: Asymmetric information in credit markets, bank leverage cycles and macroeconomic dynamics (2012)
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