Bank leverage cycles and the external finance premium

Arbeitspapier

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.

Object Details

• ISBN: 978-3-95729-001-4
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bundesbank Discussion Paper ; No. 55/2013

Classification and Topics

• Classification: Wirtschaft ; Monetary Policy, Central Banking, and the Supply of Money and Credit: General ; Monetary Policy
• Subject: leverage cycle ; bank capital ; financial accelerator ; output effects of financial shocks

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Rannenberg, Ansgar
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/91727
• Last update: 10.03.2025, 11:46 AM CET