Fiscal, monetary, and financial interactions in dynamic general equilibrium

Arbeitspapier

This paper proposes a model that links households and firms, as usual, by markets for factors and goods and, additionally, by a banking sector that channels households' funds to firms and eliminates idiosyncratic risk. In equilibrium, agency costs and tax benefits of corporate debt are equalizing each other, which renders an institutionally based explanation of financial structure. Adjustment of corporate finance adds to the ordinary savings channel of fiscal and monetary policy. Taking real and financial interactions into account, the model predicts a somewhat lower impact of fiscal policy on macroeconomic aggregates as commonly assessed and a much stronger impact of monetary policy. This amplification is caused by the banking sector's translation of borrowing rates into lending rates and vice versa.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Diskussionsbeitrag ; No. 402

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Monetary Policy ; Fiscal Policy ; Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
• Subject: Fiscal Policy ; Monetary Policy ; Corporate Finance ; Agency Costs ; Banking ; Economic Growth ; Business Cycles ; This paper proposes a model that links households and firms, as usual, by markets for factors and goods and, additionally, by a banking sector that channels households' funds to firms and eliminates idiosyncratic risk. In equilibrium, agency costs and tax benefits of corporate debt are equalizing each other, which renders an institutionally based explanation of financial structure. Adjustment of corporate finance adds to the ordinary savings channel of fiscal and monetary policy. Taking real and financial interactions into account, the model predicts a somewhat lower impact of fiscal policy on macroeconomic aggregates as commonly assessed and a much stronger impact of monetary policy. This amplification is caused by the banking sector's translation of borrowing rates into lending rates and vice versa. ; Finanzpolitik ; Geldpolitik ; Dynamisches Modell ; Allgemeines Gleichgewicht ; Finanzierungstheorie ; Konjunkturtheorie ; Wachstumstheorie ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Strulik, Holger
• Event: Veröffentlichung
• (who): Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät
• (where): Hannover
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/27211
• Last update: 10.03.2025, 11:42 AM CET