Bank Capital, Agency Costs, and Monetary Policy
Cesaire Meh and
Kevin Moran
Staff Working Papers from Bank of Canada
Abstract:
Evidence suggests that banks, like firms, face financial frictions when raising funds. The authors develop a quantitative, monetary business cycle model in which agency problems affect both the relationship between banks and firms and the relationship between banks and their depositors. As a result, bank capital and entrepreneurial net worth jointly determine aggregate investment, and are important determinants of the propagation of shocks. The authors find that the effects of monetary policy and technology shocks are dampened but more persistent in their model than in an economy where the information friction that banks face is reduced or eliminated. After documenting that the bank capital-asset ratio is countercyclical in the data, the authors show that their model, in which movements in this ratio are market-determined, can replicate the countercyclical ratio.
Keywords: Business fluctuations and cycles; Financial institutions; Transmission of monetary policy (search for similar items in EconPapers)
JEL-codes: E44 E52 G21 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2004
New Economics Papers: this item is included in nep-cfn, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)
Downloads: (external link)
https://www.bankofcanada.ca/wp-content/uploads/2010/02/wp04-6.pdf
Related works:
Working Paper: Bank Capital, Agency Costs, and Monetary Policy (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:04-6
Access Statistics for this paper
More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().